Insurance brokers protest excise tax as backlog piles

Insurance brokers say the 10 per cent excise tax on commissions poses a threat to the industry.

Through lobby Association of Insurance Brokers of Kenya (AIBK), industry players told Treasury Cabinet Secretary Henry Rotich the tax may kill the industry.

“We would appeal for an understanding of what imposition of the tax would mean. Back taxes are so huge that many of us will not be able to pay since our bottom-line is not anywhere near the amount being asked for,” said AIBK chairman Muchemi Ndungu.

“Further, there were no administrative guidelines on how to collect the tax so brokers had not collected, in effect meaning that the back taxes will have to come from their income leading to closure of many brokerages.”

The Kenya Revenue Authority (KRA) introduced the tax in 2013 but the AIBK went to court to have the decision reversed. The tax was to apply to related service providers such as agents, loss adjustors, loss assessors and other intermediaries.

AIBK said the tax would make insurance products expensive and erode any gains in penetration, now at three per cent of GDP, though far behind other markets such as South Africa with 14 per cent.

READ: Cost of insurance to rise after brokers lose KRA tax case

Data from the Insurance Regulatory Authority’s 2014 annual report indicates that there were 175 registered brokers, accounting for 24.4 per cent of premium life sales and 39.2 of the non-life business.

Introduction of new taxes without proper guidelines has also been a cause of friction between the taxman and stockbrokers.

The Kenya Association of Stockbrokers and Investment Banks (Kasib) and the Kenya Revenue Authority have locked horns after the Capital Gains Tax was introduced without proper guidelines on collection. It is set to be scrapped.

Insurance brokers also said that they face pressure from banks muscling in on their turf through bancassurance.

An insurance industry report by Exotix says bancassurance is expected to grow.