Kenya Finance Bill of 2024: The Unintended Consequences of the 2024 Motor Vehicle Tax on Consumer Behavior and the Insurance Market

From 1st July 2024, the Bill proposes to introduce a new Motor Vehicle Tax ("MVT”) at the rate of 2.5% of the value of the motor vehicle subject to a minimum of KES 5,000 and a maximum of KES 100,000

Written by Nuru Shaba

The introduction of the Motor Vehicle Tax, as outlined in the Finance Bill of 2024, could significantly impact consumer behavior and the insurance market. Paying the motor vehicle tax when obtaining insurance will likely lead to more people evading legitimate insurance purchases, which, in turn, could result in a surge of fake insurance stickers as individuals attempt to circumvent the tax. Such a scenario poses substantial risks to road safety and financial security, particularly in the event of accidents.

Given that insurers will collect the tax, associating this additional cost with obtaining insurance might push more consumers to opt for third-party insurance, which is generally cheaper than comprehensive insurance. This shift would reduce overall asset protection, as third-party insurance covers damages to others but not the insured's vehicle. The switch to third-party insurance by many motorists could drastically reduce revenue for insurers, potentially leading to job losses and even the shutdown of insurance companies. Additionally, related industries such as garages and assessors would inevitably suffer from reduced business.

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