Cost of insurance to rise after brokers lose KRA tax case

The cost of insurance is set to shoot upwards following the dismissal of a case in which brokers had challenged introduction of a new 10 per cent levy on their earnings.

Justice Mumbi Ngugi has ruled that the suit was similar to another one challenging introduction of the tax, which was dismissed by another judge —Isaac Lenaola. She held that giving the brokers an audience in the present petition would be tantamount to hearing the same suit twice.

The suit before Mr Justice Lenaola was filed by lobbies representing insurers, reinsurers, surveyors and brokers, who will be subjected to the levy. He dismissed the suit arguing that Parliament was within its powers in introducing the tax, and that the court has no legal authority to intervene.

“The petitioners have sought to clothe the same dispute that was heard and determined in the other petition in a different garb and present it to the court as a different petition. In the circumstances, the objection by KRA (Kenya Revenue Authority) succeeds. The petition is hereby struck out,” Lady Justice Ngugi held.

The KRA had filed an objection to the suit arguing the brokers were part of the already determined suit, hence the court did not have authority to hear their petition.

READ: KRA wants insurance brokers' tax case thrown out

The taxman held that nobody appealed the decision delivered by Mr Justice Lenaola hence the opportunity to fight the tax in court had already passed.

The new levy is to be charged on commissions that brokers charge to insured parties. But the 18 brokerage firms in the suit hold that they do not charge any commission on insured parties, hence docking a further 10 per cent on their earnings is unconstitutional.

The tax will be charged on other players in the industry, including insurers, agents, loss adjusters, loss assessors and other intermediaries.

Insurance brokerages have expressed fear of collapse arguing they would be unable to compete with insurance companies.

“It is impossible for insurance brokers to load 10 per cent on commission they receive and still compete with insurance companies which most of the time receive business from the public. The result is that brokerage firms will have to close down,” the firms said.

Lady Justice Ngugi, however, held that any industry player that was represented in the suit before Mr Justice Lenaola cannot present a new petition before the court as it would be trying the same case twice.

Brokers had said the costs they face from the tax will be passed on to insurance consumers, which will make insurance services more expensive without an increase in the quality of delivery. This, the brokers add, will be a violation of consumer rights.

The KRA challenged the brokers’ argument, arguing that they did not appeal the court’s decision last year, hence gave the taxman leeway to collect the tax.

The levy arose from amendments made to the Finance Act 2013, which included brokers, insurers, reinsurers and assessors’ firms as financial institutions and subsequently slapped them with a 10 per cent levy.

Brokers maintained that the amount insurance companies can pay out in premiums is set out in the Insurance Act, hence cannot be altered at will by the taxman through loading of the 10 per cent tax.