President Ruto Plans New Car Tax and VAT if Court Blocks Finance Act

President William Ruto’s administration has put together a backup plan in the event that the High Court blocks the Finance Act of 2023.
This contingency plan includes the introduction of new taxes, such as a road tax, motor vehicle circulation tax, excise tax, and value-added tax (VAT). These measures are aimed at funding the Sh3.68 trillion budget and ensuring that the government meets its revenue targets.
A motor vehicle circulation tax is a type of road tax that motorists pay to use public roads. The amount of tax is typically calculated based on various factors, including the value of the vehicle, engine capacity, and seating capacity. By implementing this tax, the government aims to generate additional revenue that can be used to fund various development projects and programs.
The Treasury has made a commitment to submit a package of legislative changes to Parliament by the end of October. These changes are necessary to ensure that the government meets its revenue targets for the current financial year and avoids further accumulation of debt. By introducing new excise and VAT measures, the government hopes to boost confidence in fiscal consolidation and reduce Kenya’s debt vulnerabilities.
According to the International Monetary Fund (IMF), the government is prepared to adopt contingency plans, which may include new tax measures, in case there is a revenue shortfall compared to the program targets. This shows the government’s determination to meet its financial obligations and maintain fiscal discipline.
The introduction of new taxes is always a sensitive issue, as it directly affects the public and businesses. However, it is important to understand that these measures are necessary to ensure the stability of the economy and the provision of essential services. The government needs a steady stream of revenue to fund infrastructure projects, healthcare, education, and social welfare programs.
It is worth noting that the government has taken steps to address concerns surrounding the new taxes. The Treasury has disclosed these plans to the IMF as part of its commitment to transparency and accountability. By involving international stakeholders, the government aims to demonstrate its commitment to responsible fiscal management.
The Treasury of Kenya has announced a series of changes to the country’s tax policies, in an effort to address its budgetary challenges. Among these changes is the adoption of a motor vehicle circulation tax, which is expected to generate additional revenue for the government. Additionally, there will be a reduction of tax exemption on interest income.

President @WilliamsRuto‘s administration has put together a backup plan in the event that High Court blocks Finance Act of 2023.
This contingency plan includes introduction of new taxes, such as a road tax, motor vehicle circulation tax, excise tax, and value-added tax (VAT). pic.twitter.com/nvcT03gqAa
— Ericson Mangoli (@ericsonmangoli) July 21, 2023

These measures are part of the Treasury’s promise to the International Monetary Fund (IMF) to implement certain reforms in order to secure financial support. By introducing a motor vehicle circulation tax, the government aims to increase its tax base and generate more revenue. This tax will be imposed on the circulation of motor vehicles, which means that individuals and businesses will need to pay a certain amount when they buy or sell vehicles. This is expected to have a significant impact on the automotive industry and the general public.
In addition to the motor vehicle circulation tax, the Treasury is also considering streamlining the Value Added Tax (VAT) apportionment ratio of allowable inputs VAT on exempt supplies. The goal is to align Kenya’s VAT system with international practices, which could potentially lead to a reduction in VAT exemptions. This means that certain goods and services that are currently exempt from VAT may now become taxable, resulting in increased prices for consumers.
The adoption of these tax changes is likely to have a profound effect on the economy and the citizens of Kenya. With the looming tax pain, Kenyans will face higher costs, particularly as the VAT on fuel is set to double to 16 percent. This will have a direct impact on the cost of transportation and the overall cost of living.
Moreover, the implementation of these changes will affect a wide range of taxpayers, as excise and VAT are consumption taxes. This means that individuals and businesses will be required to pay these taxes on various goods and services they purchase. This could potentially lead to a decrease in disposable income for individuals and increased operating costs for businesses.
The decision to revise the tax policies comes as Kenya’s reliance on ordinary revenue has been declining in recent years. In 2011/12, ordinary revenue accounted for 71.9 percent of the country’s budget. However, in the 2021/22 budget, only 56.8 percent of the funds were funded through taxes, forcing the government to rely more heavily on debt. Kenya’s debt currently stands at Sh9.63 trillion, highlighting the need for revenue generation through tax reforms.
According to the lender, in a document released on Wednesday at the start of the new wave of protests, the political risk is classified as “medium.” It also notes that if this risk becomes a reality, it will have a “medium” impact on the economy.
The International Monetary Fund (IMF) highlights that unrest could resurface due to protests against the rising cost of living and the need for increased taxes. Furthermore, these protests may be supported by the political opposition. In response to these potential risks, the IMF suggests that the government should remain committed to implementing reforms outlined in their program.
Recently, the Kenya Revenue Authority (KRA) announced that it fell short of its target by Sh107 billion in the financial year ending June. As a result, there may be pressure on the Treasury to introduce tax measures in order to increase revenue generation for this current financial year.
The IMF’s latest review states that Kenya has fulfilled all conditions necessary to secure $1 billion (equivalent to Sh141.8 billion) financing. The fulfillment of these conditions included removing subsidies and introducing new taxes as measures aimed at reducing Kenya’s reliance on debt.
As part of economic support efforts and augmenting foreign exchange reserves for Kenya, $415 million (Sh58.8 billion) was disbursed under extended fund facility and expanded credit facility programs.
As part of the 20-month arrangement under the resilience and sustainability facility, the IMF fifth review has granted Kenya $551 million (Sh78.13 billion). This move aligns with the stance taken by the Kenya Kwanza administration, which is committed to implementing its taxation measures. These measures include a 1.5 percent housing levy on workers’ gross pay and doubling the value-added tax on petroleum products to 16 percent, as outlined in the currently suspended Finance Act 2023.
The Finance Act also introduced additional taxes such as an increased turnover tax for small and medium enterprises from one percent to three percent, along with a digital asset tax. Although the High Court recently suspended the implementation of the Finance Act and referred it to Chief Justice Martha Koome for further consideration, the Energy and Petroleum Regulatory Authority (Epra) has disregarded this decision and applied a 16 percent VAT in its price review.
To address these issues, Chief Justice Koome has appointed a three-judge bench to hear the case challenging the implementation of the Finance Act, 2023. One of the petitioners against this act, Busia Senator Okiya Omtatah, has also filed an application requesting that Epra be held in contempt of court.