Taxing motor vehicle ownership is fundamentally flawed
By MUNGAI KIHANYA
The Sunday Nation
Nairobi,
26 May 2024
The Finance Bill 2024 has been formally published and the public invited
to make comments by Tuesday 28 May. One the highly contested proposals
in this bill is the introduction of an annual Motor Vehicle Tax (MVT).
It is to be calculated at the rate of 2.5 per cent of the value of the
vehicle every year.
This new tax is fundamentally flawed. It is alright to charge a levy on
property or a licence fee, but not a tax. Though it is not clear to most
people, there are distinct differences between fees, levies and taxes
charged by government.
A fee is charged for a service rendered to the specific individual
paying it and it based on the cost of that service. For example, the fee
for acquiring an identity card or a passport. Levies are collected from
a specific sector of the economy and they are meant for development of
that sector. For example, the railway development levy charged on
imported goods.
Taxes are charged on everyone and are collected every time money changes
hands – when it is earned and when it is spent. For example, income tax
and value added tax. Money from taxes is spent on common services that
are not specific to any individual or any sector.
It is therefore fundamentally wrong to charge a tax in a situation where
money isn’t changing hands. Imagine if the government decided to collect
tax on the money that you have in your savings account. If you have
Sh100,000, it takes Sh2,500. Would that be acceptable? Of course not! It
is the same with MVT!
Indeed, even the tithe paid by Christians is not calculated on the basis
of wealth or property owned. It is based on earnings – profits, harvests
etc. So, what should be an alternative to MVT? I would propose that the
tax be charged only when a vehicle is transferred from one owner to
another.
Something similar to the 4 per cent stamp duty tax that is charged on
land transfers. We can retain the same rate for motor vehicles. This
makes more sense that the current proposal to charge vehicle ownership.
But if we take that route, which valuation should be used in the
calculation? I think the best and fairest value is the insured value of
the vehicle. The logistics of how this information is shared between
insurance companies and the revenue authority can be worked out easily.
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