The Kenya Revenue Authority (KRA) has made a multi-billion shilling tax demand on insurance brokers in a move that industry insiders say could take down many of the underwriters.
The bill is related to unpaid excise taxes on commissions earned between July 2013 and December last year when the law exempting them from paying the levy was repealed.
“The potential impact of these taxes is that half of the brokers, if not more, will easily close shop and go home if the government insists that this money be paid,” said Nelson Omolo, the Association of Insurance Brokers-Kenya (AIBK) chairman.
Some of the firms have reportedly been left with more than Sh200 million tax bills, which the taxman requires them to immediately settle.
The KRA sent demand letters to the more than 200 insurance brokers claiming amounts of between Sh1.5 million to Sh200 million, for the period in which the 10 per cent excise tax remained in force before Parliament repealed it.
The Insurance Regulatory Authority’s (IRA) data shows that between July 2013 and December 2015 the brokers were paid commissions amounting to Sh23.85 billion, meaning that they owe the KRA Sh2.39 billion in unpaid taxes before any addition of penalties and accrued monthly interest that are charged at 20 per cent and one per cent respectively.
Mr Omolo said the tax demands averaged Sh30 million per broker and that immediate payment of the taxes would lead to the immediate collapse of the firms.
The brokers were last week struggling to negotiate their way out of the backdated taxes but the taxman is said to be insisting on payment.
“We have contacted KRA to see if we can be exempted from the back tax, but we have not heard from them. In the meantime, the majority of our members who have been assessed and sent demand notes have raised objections and have applied for review at the tax tribunal,” said Mr Omolo.
Insurers are also required to pay tax on the Sh10.5 billion in reinsurance commissions amounting to Sh1.05 billion earned during the period. The underwriters are, however, deemed to be safe because of their large revenue base and the firm financial position.
The KRA has been looking at multiple avenues of raising tax revenues in light of its ever expanding targets from a government that is facing a gaping budget deficit of Sh689 billion in the current fiscal year.
It has been asked to collect Sh1.4 trillion in tax revenues this year, a target it has warned will be hard to achieve with the expected negative impact of elections on corporate performance.
The taxman is sending the tax demands to insurance brokers in the wake of a High Court decision that dismissed suits filed by the AIBK and the Association of Kenya Insurers (AKI) challenging the excise tax.
Not responded to requests
The KRA says in one of the demand letters seen by the Business Daily that it calculated the tax due using returns filed by the firm(s) for the period between 2013 and 2015, in cases where firms have not responded to requests to furnish the taxman with actual commission revenues.
Credit: Business Daily