Why Car Owners May Soon Pay Extra Tax to Drive on Kenyan Roads

Car owners in Kenya may soon pay a special tax to drive on Kenyan public roads, a new disclosure by the International Monetary Fund (IMF) revealed. 

A report released by the IMF showed that the Kenyan government has developed a back up plan to raise more taxes, in the event that the Finance Act is nullified by the courts. 

According to the IMF report, the government had already drafted standby legislation that will introduce excise duties, scrap more VAT exempts on undisclosed goods and services, and introduce the motor vehicle circulation tax. 

The motor vehicle circulation tax is a form of road use tax that is common in developed countries in Europe and in Asia where it is used as a way of reducing carbon emissions and reversing the negative effects of climate change. 

It is paid annually and is calculated based on the car’s engine size, physical size, or seater capacities. In Japan, for example, the motor vehicle circulation tax ranges between Ksh500 for motorbikes and Ksh32,000 for trucks - paid annually. 

If implemented, the road use tax would come at a time when the vehicle import industry is coming to terms with the effects of the falling shilling against the dollar and the increase of vehicle import duty from 25% to 35% - that has seen a sharp increase in the prices of imported vehicles. 

The IMF report did not indicate how much the Kenyan government had proposed to charge in the backup pieces of legislation. 

Both Parliament and the National Treasury have not made public the assurances gives to the IMF during its credit assessment report on Kenya. However, the amounts to be collected are expected to cover the gap that would be left if some of the controversial clauses of the Finance ACT 2023 are nullified. 

“The authorities stand ready to adopt contingency plans that could include new excise and value-added tax (VAT) measures. They intend to submit to Parliament these contingency measures by end-October 2023 to support confidence in fiscal consolidation and the continued reduction of Kenya’s debt vulnerabilities.

“Any tax revenue shortfall relative to programme targets will be compensated for by taking additional tax policy measures,” the IMF’s report read in part. 

The High Court on June 30th suspended the implementation of the Finance Act 2023, pending a suit filed by Busia Senator Okiya Omtatah. On Thursday, June 20, the Court of Appeal declined a request by the state to lift the orders suspending the controversial law. 

Despite the suspension of the entire Finance Act 2023, some of its provisions have been implemented, including the introduction of 16% VAT on fuel products that took effect on July 1. The suspended law has also been subject of the ongoing protests led by the Opposition. 

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