NAIROBI, Kenya, May 17 – Tax advisory firm Ernst & Young (EY) has raised concerns about the potential negative impacts of the proposed amendments to the VAT Act, 2013, particularly regarding the insurance sector.
The proposal aims to limit VAT exemptions to insurance and reinsurance premiums, leaving other services provided by insurance companies subject to VAT.
According to EY, this change could have significant repercussions for the insurance industry in Kenya by slowing the already low insurance uptake.
“This is likely to capture services incidental to the insurance business such sale of salvage, administration fees etc. With the current low insurance penetration in Kenya, this move will potentially have adverse effects on the sector,” read a review by EY in part.
EY’s analysis suggests that this move could lead to increased operational costs for insurance companies, which may, in turn, be passed on to consumers.
It warned that the additional VAT on non-premium services could further hinder the growth of the industry, deterring potential customers and placing an additional burden on existing policyholders.
The Kenyan insurance sector has been struggling with low penetration rates, currently estimated at 3 percent of the population, according to the Insurance Regulatory Authority (IRA).
The government has been on an aggressive push to scale up the country’s revenue, with the current proposal seeking to scale up tax on an array of sectors, including betting and telephone services.
Earlier, the head of state revealed that he is keen on broadening the country’s tax base to 22 percent at the end of his term as a way of ensuring self-reliance.
“Kenyans have been conditioned to think that they pay the highest taxes but empirical data shows that as of last year our tax as a percentage of our revenues is 14 percent,” he said.
