Kenyans could face insurance premium increases as the industry factors in Treasury’s new withholding tax on services from foreign operators, experts have warned.
The higher costs, analysts at PricewaterhouseCoopers say, would be borne by Kenyans because the foreigners have no taxable presence locally.
Some reinsurance, marine and aviation insurance covers are currently sourced from overseas-based multinationals.
The new withholding tax has been proposed at five per cent of premiums, as per the Finance Bill. For marine, the tax would be imposed on insuring the hull or body of the ship, not on cargo that is all supposed to be insured locally.
“This [withholding tax] taxation measure is likely to increase the cost of insuring certain risk overseas, as foreign insurers or re-insurers are unlikely to accept this tax as they have no taxable presence in Kenya, leaving Kenyan customers to bear the tax cost,” said PwC in its budget analysis alert.
“This will only increase the cost of insuring certain specialized risks that cannot be insured in Kenya.”
Isaac Ng’aru, an insurance expert, said the most likely areas of underwriting to be affected will be business in reinsurance, aviation and marine insurance because some of the companies are based in foreign lands.
“We could see some business in aviation, marine insurance as well as reinsurance affected by the new tax.
“There is no reason some of this business cannot be done in Kenya, but strategic alliances have ensured that we have a lot of business insured abroad, especially in aviation,” he said.
The expert says the Aero Club of Kenya has in the past resisted attempts to have them insure their operations in Kenya, insisting that the World Trade Organisation (WTO) protocol allows such business to be done internationally.
“The club has made that argument of the WTO protocol, but then maybe the government still would want that business here,” said Mr Ng’aru.
The government had wanted the aviation industry to insure at least the third-party business in Kenya but the globalisation of the industry as well as strategic alliances made it difficult to push that agenda.
However, the Treasury sees the chance of using the tax route to push the same agenda.
In the case of reinsurance, Mr Ng’aru said, it is best practice for some of the costs of insurance to be taken up by reinsures abroad as part of spreading the risk. This means that the tax cannot be avoided except for the part of the premiums are ceded to local reinsurers.
He noted that while it would be possible to trace marine, aviation and reinsurance business done with foreigners, it will be virtually impossible for the authorities to trace that which is carried out by individuals who may be holding accounts elsewhere in the world.
Source: Businessdailyafrica.com
