Motorists face higher costs of operating their vehicles as the government plans to reintroduce controversial taxes on insurance premiums and carbon emissions to shore up revenues for road construction and maintenance.
The Ministry of Transport has disclosed the plan to reintroduce car insurance premium tax and congestion levy in a National Tolling Policy published on Tuesday this week—marking a return of the revenue-raising measures that were shelved last year amid youth-led street protests against the Finance Bill, 2024.
“To maintain proper road infrastructure financing, the policy proposes an increase in the fuel levy fund, introduction of road tolls, polluter pays principle and insurance premiums tax with the balance obtained from the exchequer,” says the draft tolling policy dated February 2025.
“The sale of petrol and diesel continues to decrease as demand for cheaper, more fuel-efficient cars, and electric vehicles increases. If the government continues to struggle with already strained budgets while the private sector moves away from gasoline-powered vehicles, the condition of the road infrastructure will continue to deteriorate.”
The Treasury attempted to introduce taxation on car insurance premiums last year through the defeated Finance Bill, 2024 while the congestion or pollution tax has previously been proposed in other policy documents, including the Integrated National Transport Policy.
The choice of taxing motor vehicle insurance premiums and a pollution tax is seen as a creative way of offsetting revenue erosion from fuel taxes, which have been impacted by motorists switching to fuel-efficient vehicles and electric vehicles (EVs).
The policy does not, however, give details, including the specific payment tariffs for the proposed taxes.
EVs are projected to record significant growth in the long term, to account for 30 percent of annual sales or registration of vehicle fleets amid global pressure to transition to green energy and climate change campaigns.
The government has primarily relied on fuel taxes to fund new road projects and maintain the existing infrastructure through collections such as the road maintenance levy, which was raised to Sh25 per litre of petrol or diesel last year from Sh18 previously.
Fuel taxes are now deemed inadequate, as findings from the road sector analysis on the financing gap for development show a deficit of Sh4.05 trillion above the available development budget of Sh1.09 trillion over the next 10-year planning period.
The ideal collections from the road maintenance levy are, for instance, estimated at Sh132 billion per annum while an analysis of the road maintenance shows an annual requirement of Sh253.5 billion.
“The report concludes that the road maintenance levy fund cannot sustain the maintenance of the expanding road network in the long term and this unsustainability necessitates the need to adopt strategies to seek alternative and long-term funding solutions for road maintenance and alternative sources of road financing,” says the draft policy.
The Finance Bill, 2024 proposed the motor vehicle tax payable at the time of the issuance of the insurance cover based on the value of the motor vehicle. The proposed tax was set at 2.5 percent of the value of the motor vehicle with a minimum charge of Sh5,000 and a maximum of Sh100,000.
The proposal fell through as the Finance Bill, 2024 unravelled to deadly street protests, with the move also facing opposition from the transport and logistics industry.
The National Green Fiscal Incentives Policy Framework from 2023 meanwhile pre-empted a daily traffic congestion charge levied on cars driven in zones marked as heavy traffic areas such as the central business district.
The implementation of the proposal would see Kenya join cities such as London and New York which introduced the charge in 2003 and 2025 respectively.
The congestion or pollution tax would be targeted at motorists in urban centres like Nairobi, Mombasa, Kisumu, Eldoret, and Nakuru. The push for taxes on motor vehicle insurance premiums and pollution and congestion taxes are expected to supplement the introduction of tolls, which will be applicable to the entire road network in Kenya.
Tolls are expected to be introduced on roads requiring user charges to be financially viable.
“Tolling will only be introduced where the projected cost of collection (including infrastructure costs) is less than 15 percent of the expected revenues,” the draft policy adds.
The policy identifies 12 vehicle classification categories for tolling, including motorcycles, passenger cars, mini-buses, light trucks, and articulated trucks. The classification is also expected to guide the application of polluter or congestion taxes.
Toll tariffs will be based on an assessment of the cost of developing, maintaining, and rehabilitating the road network, a willingness to pay survey, existing alternative routes, and evidence of users’ benefits from road use, including time saved.
