Insurance firms have warned of compliance headaches on the Treasury’s proposed annual tax on motor vehicles given that customers renew covers at different times of the year.
The Association of Kenya Insurers (AKI), the lobby for underwriters, said the proposal to make its members the collecting agents of 2.5 percent tax on the value of vehicles will mean collecting and remitting the deductions to Kenya Revenue Authority (KRA) nearly every day.
AKI said this would pose a compliance nightmare for insurers and that most motorists will likely opt for the cheaper third-party instead of comprehensive insurance covers.
“We note that the motor vehicle tax is also payable within five working days from the date of the insurance cover. This means that insurance companies will be remitting taxes every single working day given that accrual and sale of policies happen every day,” said AKI in its submissions to Parliament.
“The insurers as the agents of the government will be required to amend or upgrade their financial systems to accommodate a new tax collection obligation, upskill the staff, and increase the workforce due to the increase in administrative activities.”
The Finance Bill 2024 proposes the introduction of a 2.5 percent annual tax on the value of vehicles, with the deduction set at a minimum of Sh5,000 and a maximum of Sh100,000.
The deduction, called motor vehicle tax, will be paid on each vehicle at the time of issuing an insurance cover. The Bill makes insurers agents of KRA and they will be required to collect and remit the tax within five working days after issuing a motor vehicle insurance cover or risk a penalty of 50 percent of the uncollected tax.
AKI told Parliament the tax agency’s role is going to increase the cost of compliance for insurers, coming on the back of substantive spending on the implementation of the switch to International Financial Reporting Standards (IFRS) 17 from IFRS 4 that started in January 2023.
