The Association of Kenya Insurers (AKI) has raised concerns regarding the administrative burden placed on insurance firms by the Treasury's proposed annual motor vehicle tax.

The new tax would see a 2.5 per cent levy placed on the value of vehicles, collected at the time of insurance cover issuance.

AKI argues that the tax collection requirement, which mandates remittance to the Kenya Revenue Authority (KRA) within five working days, creates a "compliance nightmare" for insurers.

Their core argument hinges on the staggered nature of insurance policy renewals throughout the year.

This, they say, would necessitate near-daily tax collection and remittance, posing significant logistical challenges.

Read More

  1. Why KRA wants taxpayers to update their registration details duly on iTax
  2. Treasury outlines strict remedial measures should MPs reject key tax proposals
  3. What Kenyans should expect in proposed national budget taxation changes

"We note that the motor vehicle tax is also payable within five working days from the date of the insurance cover," AKI stated in its submissions to Parliament.

"This means that insurance companies will be remitting taxes every single working day given that accrual and sale of policies happen every day."

The additional administrative burden extends beyond just frequent remittances.

AKI highlights the need for potential system upgrades, staff training, and potentially even increased workforce size to accommodate the new tax collection responsibilities.

These changes come on top of recent investments made by insurers to comply with the switch from IFRS 4 to IFRS 17 accounting standards, implemented in January 2023.

The proposed tax itself would see a minimum levy of Sh5,000 and a maximum of Sh100,000 applied based on the vehicle's value.

AKI additionally expressed concern that the increased cost of car insurance due to tax collection duties could incentivize motorists to opt for cheaper, third-party-only coverage, potentially reducing overall insurance uptake.