Court stops Madison from carrying forward losses under life insurance

Evidence tabled in court showed that the insurer commissioned an actuarial report, for the income years 2007, 2008, 2009 and 2010, at the request of the Kenya Revenue Authority (KRA).

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Madison Insurance Kenya has suffered a blow after the Court of Appeal rejected its bid to carry forward losses it made in 2008 to offset taxable profits for the year 2009.

A bench of three judges of the appellate court ruled that the insurer could not carry forward losses in respect of life insurance business prior to 2009, in calculating the taxable income, since the repeal of Section 19(9) of Income Tax Act (ITA) came into force on January 1, 2009.

Justices Hannah Okwengu, Kathurima M’Inoti and John Mativo said the insurer was asking the court to apply the amendments introduced by Section 32 of Finance Act 2008, which became effective on January 1, 2009, retrospectively.

“To our mind, the general rule is that, in the absence of express provision to the contrary, statutes should be considered as affecting future matters only; and more especially that they should if possible be so interpreted as not to take away rights actually vested at the time of their promulgation,” ruled the judges.

Evidence tabled in court showed that the insurer commissioned an actuarial report, for the income years 2007, 2008, 2009 and 2010, at the request of the Kenya Revenue Authority (KRA).

The KRA later raised an assessment of Sh41 million as corporate tax. The insurer objected and after conducting an audit, KRA issued further assessments of Sh49.3 million and Sh47.7 million, for the years 2010 and 2011, respectively.

The insurer submitted that under Section 15(4) of ITA, it was allowed to carry forward business loss for five years of income, as it was an allowable deduction in ascertaining the total income, for the year under computation, and the next four succeeding years of income.

Its application to the Tax Appeals Tribunal and the High Court were subsequently dismissed.

High Court Judge Lucy Gitari had ruled that the company could only offset the losses in the life insurance business in the particular year of income, and could not therefore purport to carry forward the losses suffered in 2008 to the year 2009, as the law existing then prohibited in express terms the carrying forward of such losses.

The insurer then moved to the Court of Appeal faulting the High Court saying the decision was incorrect.

But appellate judges said the argument urging them to consider the law as it was in 2009, and apply it retrospectively was untenable since the losses, whenever arising, would be utilised in the tax computation for the year 2009 when the repeal of section 19(9) came into operation.

“Accordingly, we are satisfied that no losses in the life insurance business prior to 2009 would have been available to carry forward to the year 2009. It is also noteworthy that section 19(9) of ITA was repealed and replaced with new sections 19 (5) and 19(5A) of ITA both of which had an effective date of 1st January 2009. As stated earlier, these provisions had no retrospective effect,” said the judges.

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