In the case of Commissioner of Domestic Taxes vs ICEA Lion General Insurance Co Ltd (Income Tax Appeal E105 of 2023), the Kenya Revenue Authority (KRA) initiated a compliance review covering the period 2015 to 2018, demanding KES 122 million in Corporation Tax and KES 88.8 million in VAT, inclusive of penalties and interest.
While the Corporation Tax matter was settled at the Tax Appeals Tribunal , the key issue before the High Court was whether VAT is chargeable on the disposal of salvage motor vehicles by insurance companies.
The High Court ruled in favor of ICEA Lion, holding that the disposal of salvages is an integral part of the insurance business, arising from the principles of indemnity and subrogation. As such, the VAT exemption applicable to insurance services extends to the disposal of salvages.
We note that this position is subject to change if KRA proceeds to the Court of Appeal and gets judgment in its favor.
We will continue to monitor developments and share updates as they unfold. If you would like to discuss how this may affect your business, please reach out to our tax advisory team.
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