KRA in Sh1.2bn tax claim against Kenya Reinsurance

The High Court has stopped the taxman from collecting a claim of more than Sh1.2 billion from the Kenya Reinsurance Corporation Services.

Kenya Re told the court that the taxman had demanded the money on July 9 saying it accrues from commission and brokerage deducted (from) its clients, some of whom are beyond Kenyan borders. The reinsurer has accused the commissioner of domestic taxes of violating its rights by demanding the payments, arguing that the amounts being demanded are not eligible for taxation.

Justice Mumbi Ngugi issued the injunction after the re-insurer filed the suit following fears that the Kenya Revenue Authority (KRA) would attach its assets to the tax claim, and even freeze its bank accounts.

She further directed that Kenya Re serves the Commissioner of Domestic Taxes with suit papers for the hearing set on September 23.

“The respondent claims that the payments by Kenya Re to the non-resident insurance companies were compensation for providing an underwriting opportunity to Kenya Re,” said Nazim Malik, who is representing the insurer.

“The commissioner of domestic taxes has acknowledged in its demand that there is no agency relationship between Kenya Re and the reinsurance brokers so no withholding tax is deductible,” said Kenya Re in its court papers.

The claim for the Sh1.2 billion in tax was made following recommendation of an audit of the company by financial consultancy firm KPMG done in January last year. Kenya Re managing director Jadiah Mwarania told the court that his company was informed without reason that it was not charging withholding tax payments on resident and non-resident brokers, yet this is tax deductible.

“The commissioner was of the view that there was agency relationship between Kenya Re and the brokers,” said Mr Mwarania. According to the law, the amounts are only deductible if there is an agency relationship between the reinsurer and the insurance broker.

The commissioner of domestic taxes has allegedly included brokerage deducted by brokers resident in India, Zambia and the UK. Kenya Re says the countries have signed a double taxation treaty with Kenya and the deductions are not taxable in locally.