Wealth tax
The National Treasury is considering the introduction of a Motor Vehicle Circulation Tax, targeting Kenyan car buyers. This proposal was revealed in the Treasury’s Medium-Term Strategy for the Financial Years 2024/2025-2026/2027.
This proposed levy, categorized as a wealth tax, would be paid annually once vehicle owners gain full ownership of their automobiles.
“The tax will be paid annually by motor vehicle owners at the point of acquiring an insurance cover,” stated Prof. Njuguna Ndung’u.
The Treasury also intends to establish a minimum tax amount applicable to all motor vehicle owners, with the final tax liability varying based on the engine capacity of the vehicle.
Carbon tax
Importantly, this Motor Vehicle Circulation Tax would run concurrently with the carbon tax.
The government is also contemplating the implementation of a carbon tax that would be imposed according to the carbon content of fossil fuels, aiming to bolster tax revenue.
Recognizing the role of motor vehicle emissions in contributing to air pollution, the government plans to raise taxes on vehicles using fossil fuels. As stated in the Medium Term Strategy, this move is “to address environmental damage and negative health effects.”
Furthermore, the Treasury clarified that the carbon tax would be phased in over the strategic period for imported vehicles. This tax would extend beyond automobiles to encompass other machines reliant on fossil fuels, including tractors, forklifts, excavators, and earthmovers.
Education tax
In a related development, the National Treasury has also put forth a proposal to introduce taxes on certain non-education-related services offered by schools.
This initiative, detailed in the Medium-Term Revenue Strategy (MRTS) for the Financial Year 2024/25 to the Financial Year 2026/27, aims to rectify inconsistencies arising from differing fees and services across schools, which result in uneven tax exemptions for educational services.
The Treasury highlighted that the blanket exemption from Value Added Tax (VAT) on educational services provided by schools has led to disparities.
It specifically cited activities like swimming, which, when offered outside of school, are subject to VAT. To address this inequity, the Treasury advocated for the imposition of VAT on these supplementary services.
This taxation of education-related services is one of several measures introduced by the government to close tax evasion loopholes and enhance taxpayer compliance.
Government development agenda
Treasury Cabinet Secretary Njuguna Ndung’u emphasized that these new taxes, including those on education services, would play a pivotal role in advancing the government’s development agenda.
“Education services in Kenya are exempt from Value Added Tax to make education accessible to all learners. However, the benefit of the exemption is not uniform across all learners due to differences in fees charged and services provided,” explained the Cabinet Secretary regarding the rationale behind the proposed tax on education services.
“In this respect, the Government will explore the introduction of VAT on services provided by schools but are not directly related to education,” the MRTS document stated, with the Treasury also considering appropriate thresholds for these services.
