Luxury car owners to pay over Sh400,000 a year

High end car owners will now have to dig deeper into their pockets, with the annual motor vehicle tax set to skyrocket to at least Sh400,000 following the National Treasury’s decision to scrap the previous Sh100,000 cap.

During the budget presentation for the 2024/25 financial year, Treasury Cabinet Secretary Njuguna Ndung’u surprised many by omitting the earlier proposed upper limit, leaving owners of cars valued at over Sh4 million facing a hefty tax bill.

The initial plan was to impose a 2.5 per cent tax rate, with a minimum of Sh5,000 and a maximum of Sh100,000 per year. However, this has now been thrown out the window, leaving high-end car owners feeling the pinch.

As Kenyans who rely on public transport brace themselves for tougher times ahead, bus and matatu operators are expected to pass on the tax burden to passengers. This means that owners of luxury vehicles costing upwards of Sh15 million will now be shelling out Sh420,000 annually, while bus and matatu owners will also be hit hard by the removal of the cap.

In a bid to boost revenue and promote self-reliance, Prof Ndung’u announced, “To expand the tax base and make our country self-reliant, I propose to introduce an annual motor vehicle tax at the rate of 2.5 per cent of the value of the vehicle, subject to a minimum amount of Sh5,000 per annum.”

The new tax will apply to vehicles when obtaining insurance cover, with second-hand car owners only paying lower tax if the value of the vehicle decreases.

However, there are some exemptions to the tax, including ambulances, vehicles owned by certain government agencies, and those covered under the Privileges and Immunity Act.

Despite opposition from public vehicle operators, the Treasury has stood firm on its decision to remove the cap, much to the dismay of bus, matatu, and lorry operators who fear that the removal of the cap will lead to increased costs for them and ultimately affect their livelihoods. Many operators are concerned about the impact this tax will have on their already struggling businesses, especially in the current economic climate. The government’s decision has sparked outrage and calls for reconsideration from various stakeholders in the transportation industry.