Blow to taxman as court blocks VAT on insurance premium

Insurers said the VAT would increase their expenses and liability. [Jonah Onyango, Standard]

The taxman will lose billions of shillings it expected to collect from the insurance sector after the court blocked implementation of 16 per cent Value Added Tax (VAT) on insurance premiums.

In a case filed by the Association of Kenya Insurers (AKI), High Court judge James Makau ordered that application and part of changes to the Tax Laws (Amendment) Act, 2020 (TLLA), which lifts tax exemption on insurance cover, should not be implemented.

The judge cited ambiguity in the law and lack of public participation as the reason why Kenya Revenue Authority (KRA) cannot demand for the VAT.

“I find the petitioner has a right to certainty of law and this court cannot condone such situation nor allow the ambiguity and uncertainty to persist anymore,” ruled Justice Makau.

The judge’s view on public participation conducted by National Assembly casts doubts on the entire law, which gives government the right to collect more than Sh3.2 trillion to finance its budget.

The judge found that Parliament did not give Kenyans a platform to interrogate the tax law.

“I find from the way the public participation was conducted, it is possible the public was not provided with meaningful opportunities for participation and therefore the TLAA might have been passed without meeting the critical constitutional requirement,” he ruled.

AKI, representing 51 insurance companies, argued that the new VAT Act, provides that services offered by insurance firms are not VAT exempt.

It said KRA had gone ahead to invoice insurance firms.

The insurers said the VAT would increase their expenses and liability when their income is adversely affected by the Covid-19 pandemic.