•The tribunal ruled that the appellant is liable for excise duty on the services rendered in respect of the KCB.
•KRA defended its actions and informed the tribunal that the taxpayer’s claim that the fee on the administration of KCB’s RFM is premium-based commission, which is exempted from excise duty, is erroneous.
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The Kenya Revenue Authority is set to collect a tax of Sh107,046,316 following a decision by the Tax Appeals Tribunal that dismissed an appeal filed by KCB Agency Limited.
In a judgement delivered on May 28, the tribunal reviewed the evidence as presented by both parties and held that KRA was authorised by the law to demand and charge late payment penalty and interest on VAT and excise duty not remitted by the insurance agency.
“Based on the foregoing analysis, the tribunal orders that the objection decision dated August 5 last year as relates to VAT in the aggregate sum of Sh60,065,117.00, inclusive of penalty and interest is hereby upheld”, the tribunal ruled.
The tribunal further ruled that the appellant is liable for excise duty on the services rendered in respect of the KCB Bank Kenya Limited’s Risk Margin Fund and the KCB Group Medical Scheme.
The taxpayer had contended that KRA’s treatment of its income earned from services provided to KCB Risk Margin Fund as consultancy fees, which are subject to VAT, is erroneous.
The insurance informed the tribunal that KRA conveniently disregarded the fact that the Risk Margin Fund services to KCB were provided by the taxpayer, acting in the capacity of an insurance agent whose services were expressly exempt from VAT during the period under review.
The agency further averred that the medical administration fees are premium based income and thus expressly excluded from the purview of the Excise Duty vide provisions in the Excise Duty Act 2015, which became effective December 1 2015.
According to the taxpayer, subjecting premium based fees earned by it from managing KCB’s group medical scheme to Excise Duty goes contrary to the provisions of the Excise Duty Act, 2015 that excludes premium based fees from the scope of Excise duty.
It argued that KRA erred in law and fact by imposing VAT on fees earned for the administration of KCB Bank’s Risk Margin Fund contrary to the provision of Paragraph 10 of Part II of the First Schedule to the VAT ACT, 2013 which expressly exempted insurance agency services from VAT.
KRA defended its actions and informed the tribunal that the taxpayer’s claim that the fee on the administration of KCB Bank’s RFM is premium-based commission, which is exempted from Excise Duty is erroneous.
It submitted that in the absence of VAT exemption, the income of Sh43, 055,088.00 earned by the agency from the administration of KCB Group’s medical scheme is chargeable to VAT under Section 5 of the VAT Act.
It averred that its position in the objection decision issued on August 5 last year was sound in law and proceeded to identify and submit on issues that are substantively similar to those identified by the Appellant.
KRA reaffirmed its position as contained in the objection decision which sought to charge VAT on fees earned by the appellant on the administration of the RMF.
In support of its decision, the respondent avers that it reviewed the service level agreement between the appellant and the finance division of the Kenya Commercial Bank Group.
KRA said that on further interrogation, it found that the premiums paid for unsecured loans are held in a fund by KCB and managed by the insurance agency with regards to the claims made.
Edited by Kiilu Damaris