Insurers seek exclusion from 1pc premiums tax

Association of Kenya Insurers Chief Executive Tom Gichuhi. FILE PHOTO | NMG

By PATRICK ALUSHULA
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Summary

• Insurers want to be categorised similarly with upstream oil and gas, residential rental income, employment income, and persons paying turnover tax—all who the Bill proposes to exempt from this tax.
• PricewaterhouseCoopers (PwC) in a brief to the National Treasury said the minimum tax should not be applicable to the insurance sector since their gross premiums are already subject to an industry-specific levy.

Insurers are seeking exemption from one percent tax on gross written premiums, arguing that it is ambiguous and will stifle growth for a sector that already pays a myriad of other levies on its premiums.

The Association of Kenya Insurers (AKI) said the insurance sector should be excluded from the Tax Laws (Amendment) No.2, Bill 2020 that wants firms to be paying one percent tax on their turnover, warning that it could cripple businesses.

Insurers want to be categorised similarly with upstream oil and gas, residential rental income, employment income, and persons paying turnover tax—all who the Bill proposes to exempt from this tax.

“The minimum tax as proposed will apply on turnover, which in the case of insurance business is gross written premium. This would be a grave error,” said Tom Gichuhi, AKI chief executive.

Mr Gichuhi added that the tax is ambiguous, since for life insurers the premium does not amount to business revenue.

Life insurers are required to put the received premiums into a fund which is protected by law and from which all future claims are to be paid.

“To tax this premium is tantamount to taxing policy holders’ funds and therefore rendering insurance companies unable to pay claims,” said Mr Gichuhi.

The minimum tax will come as an addition to the other direct and indirect taxes paid by insurance companies in Kenya.

Kenyan insurers pay one percent of gross direct written premiums to finance Insurance Regulatory Authority operations.

The insurers also contribute 0.25 percent of the premiums paid by the respective policyholders every month to the Policyholders Compensation Fund.

In addition, 0.35 percent of gross direct premiums written in the general insurance business is charged on policy holders and collected by insurance companies as insurance training levy.

PricewaterhouseCoopers (PwC) in a brief to the National Treasury said the minimum tax should not be applicable to the insurance sector since their gross premiums are already subject to an industry-specific levy.

The audit and advisory firm further warned that the minimum tax is likely to hurt compliance with the risk-based capital regime that sets in next year.

“Imposing minimum tax on a sector that is striving to attain the required capital will stifle the growth and may force various players out of the market,” said PwC.