New VAT rules for insurance brokers

On 25th April 2020 the President of Kenya assented to the Tax Laws Amendment Bill and this became an Act. Amongst various changes made, tucked away in the VAT section was the removal of VAT exemption on insurance brokers and agents.

This change does not appear to have been noticed before, or if it was, no real representations were made about this being unfair and, ultimately, in these extremely difficult times, simply imposes additional financial burdens on policyholders.

So, there are innumerable questions surrounding this, and as of today, there are no answers. Indeed, the top Accounting firms in Kenya and East Africa have conflicting views on this. Some suggest the Broker has to pay, some say it is an Insurers responsibility, and some suggest it is an additional cost that has to be passed to the ultimate consumer. The fact it was imposed on 25th April, but no-one told the industry until 2 days later, means that everyone was ‘caught on the hop’.

We have taken this up within the industry, including our own Auditors, two additional Accountancy firms, the Association of Insurance Brokers of Kenya, the Association of Kenyan Insurers, Insurance Regulatory Association and finally the Kenyan Revenue Association. As of the date of publication of this article, we have 3-4 varied views on what needs to be done, who needs to pay and several other important points that do not appear to have been considered.

One client of ours who saw the announcement suggested that if he dealt directly with the Insurer he would ‘cut out the middleman’ (the Broker/Agent) and ensure that the premium was less. Please note, this will not be possible as under the Insurance Act as no Insurer is allowed to charge a Policyholder differently on a direct basis, to if they were dealing with them directly. Any Insurer breaching this will be reported and possibly fined and sanctioned. In the case of JWS clients, they will also not receive the benefits of our extensive policy wordings. Sadly, it is very likely that premiums will need to rise affecting those non-registered entities, and individuals who are unable to recover the tax.

More is happening on this subject daily, so we will keep you all informed as and when we know more.

If you have any questions related to any of the above please email us on [email protected] or call us on 254 (0)709 445 000.

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