Taxing insurance pay a threat to economy


The government wants to introduce value-added tax (VAT) on insurance services. FILE PHOTO | SHUTTERSTOCK

The intention to tax insurance payouts at 16 percent is yet another controversial proposal the government has made to apply in the new year starting July.

Among others, experts are warning this will undermine the push to grow insurance in a market where penetration stands at less than three percent to the Gross Domestic Product.

Again, the experts, through the Association of Kenya Insurers, say this tax can only be implemented after removing insurance from the list of VAT-exempt items.

Although some mature insurance markets such as South Africa have a similar tax, it would be detrimental for Kenya that is struggling to grow the insurance reach to tax such a crucial sector that the government should be cushioning from any raid by the taxman.

Because such a cover is one of the tools required to grow insurance where innovative products were yet to register a positive bump.

But more importantly, how does the government deal with the policy of indemnity, meaning that insurance cover is supposed to leave the insured in same standing before the insured risk raided its life, business or property?

Payouts that fall below the sum assured are likely to see more people and businesses opting out while the few remaining will be in endless tug-of-war with the insurance companies in terms of product pricing and indemnity.

We urge MPs, who have been tipped on the controversial proposal, to drop it because it is a big threat to the insurance industry and the wider economy.