The Kenyan High Court has on 16 July issued a ruling suspending value-added tax (VAT) on insurance agency and insurance brokerage services, pending the hearing and determination of a petition by the Association of Kenya Insurers (AKI).
VAT was made effective by the Tax Laws (Amendment) Act 2020 on 25 April.
In a commentary, international professional services firm EY notes that AKI sought the conservatory order on the grounds that the amended tax law contravenes key constitutional provisions such as general provisions relating to the Bill of Rights, national values, the right to equality and freedom from discrimination, public access and participation, principles of public finance and the general provisions of the Constitution.
EY, in its bulletin Indirect Tax Alert, said, “In arriving at its decision, the Court concluded that the petitioner had demonstrated that it had an arguable case on whether it was accorded adequate opportunity to engage in public participation, among other pertinent matters.
“It was the Court’s general finding that the petition raised triable issues with chances of success. It was, therefore, justified and necessary for the conservatory orders sought to be granted in order to preserve the current state pending the determination of the petition.”
The issuance of a conservatory order implies that these services will revert to the exempt status they enjoyed prior to the amendment until the suit is heard and determined by the Court. Should the petition fail, these services shall be deemed to have been subject to VAT effective 25 April 2020.
EY added, “It is important to note that while this ruling provides temporary relief to insurance companies, the affected parties should consider making a provision for the payment of the VAT in case the petition fails.”
The firm also advises insurance brokers and agents who had registered for VAT between 25 April and 16 July 2020 should evaluate the pros and cons of remaining as registered taxpayers vis-à-vis deregistering, bearing in mind the outcome of the petition is unknown. It is also notable that the deregistration process is in most cases lengthy and a taxpayer is still required to continue filling VAT returns until the deregistration is completed by the Kenya Revenue Authority (KRA).
For those brokers and agents which choose to retain their registration status, they should ensure that they file VAT returns until the petition is heard and determined by the Court. If they supply other taxable services, they should continue charging and remitting VAT to the KRA.