The National Budget for the year 2011/2012 was delivered by the Deputy Prime Minister and Minister for Finance on the 8th of June, 2011. Various amendments touching on the financial services sector and more particularly on Insurance Business came through in the Finance Bill, 2011. There were also amendments to the Regulations that took effect immediately on the 9th June, 2011.
THE PROVISIONAL COLLECTION OF TAXES AND DUTIES ACT, CAP 415
The following amendments under this Act, which relate to insurers took effect on 9th June, 2011
A. TRAFFIC ACT , CAP 403 Legal Notice No 47, Kenya Gazette Supplement No 45 An amendment to introduce a Deregistration certificate has been passed vide the Traffic (Amendment) Rules 2011. The Certificate will be used to deregister a motor vehicle written off by an insurer. This corresponds to an amendment to, Section 6A (2), introduced under the Traffic Act ,Cap 403 on 1st January, 2008. The amendment stipulated that Motor Vehicle Registration Book(s) and Identification plates for all vehicles that were written off by an insurer be returned to the Registrar of Motor Vehicles for cancellation.
The form is now in use effective Thursday, 9th June, 2011.
B. INCOME TAX ACT CAP 470 Vide Legal Notice No 48 Kenya Gazette Supplement No 45, the Income Tax Act, Cap 470 has been amended as follows:- Effective 1st of March, 2010, the Minister for Finance exempted the funds contributed directly by members of the Association of Kenya Insurers in respect of the Integrated Motor Data System from Income tax for a period of two years upto 28th February, 2012. The amounts specified for such exemption are Kenya shillings One Million, One hundred and Seventeen Thousand, Six Hundred and Forty Seven (Kshs.1,117,647/=) as well as the amount of Kshs. thirty (Kshs.30/=) levied on every motor insurance certificate. The income to be exempt should however not exceed the cost of the project.
This replaces last years Legal Notice No 83 of 2010 which has now been revoked.
C. THE RETIREMENT BENEFITS ACT 1997(No 3 of 1997) Vide legal Notice No 49, Kenya Gazette Supplement No 45, The Regulation 5 of the Retirement Benefits ( Managers and Custodians) Regulations 2000
In last year's Budget, an amendment was introduced under Regulation 5 i.e Regulation 5A, which sought to restrict the appointment of persons as administrators of a scheme if that person was related to the fund manager. This amendment sought to restrict related companies from performing both an investment and administration function for the same scheme. It was noted that the amendment which was targeted at insurers who had massive investments in pension business, would be adversely affected.
Following concerted lobbying efforts by AKI with Treasury, IRA and RBA, pension schemes that invest in guaranteed schemes have now been exempted from the requirement to have a separate fund manager and an administrator.
D. THE INSURANCE ACT CAP 487 Under Legal Notice No 51 , The Insurance (Amendment) Regulations 2010
The following Regulations are amended as follows;
1. The Seventh Schedule paragraph (1) is amended to adopt new revised mortality rates that will now be used in calculating the liability under the policy effective 9th June, 2011 as follows: Type of policy Table
1. Industrial life KE 2001-03 tables for Assured Lives –Individual Assured Lives
2. Ordinary Life KE 2001-03 tables for Assured Lives
3. Immediate Annuities and deferred annuities after vesting KE 2001-2003 Tables for Assured lives Individual Annuitant lives
4. Group Life KE 2001-2003 Tables for Assured lives-Adjusted Group Assured lives
5. All other Assurances including deferred annuities during deferment period KE 2001-2003 Tables for Assured Lives-Individual Assured Lives
NB:KE 2001-2003 are the mortality tables developed by the Association
2. The Third, Ninth, Tenth and Fifteeth schedules have been amended to include medical Insurance business. There is also a corresponding amendment to the Eleventh schedule that provides that the Commission rate for Medical Insurance will now be 20%.
3. Further the Twenty-first schedule of the regulations is amended at Part C under Forms INS 203-1A, 203-1B,and 203-2 which relate to declarations on outstanding claims. The amendment will enable insurers to declare the claims revised or the changes in claims reserves during the year within a period of ninety days as opposed to the previous scenario where members were required to declare claims outstanding at the end of each year within a period of sixty days.
THE FINANCE BILL, 2011
The following amendments proposed under the Finance Bill, 2011 take effect on 1st January, 2012.
THE INSURANCE ACT, CAP 487
(a) Section 30A: Opening of a Branch
It is proposed to give the Insurance Regulatory Authority(IRA) powers to authorize the opening up of new branches or places of business by insurers. In granting an approval for such an application the Authority shall consider, the history and financial condition of the insurer, adequacy of capital, structure, viability and earning prospects of the branch. The fees will be Kshs Twenty Thousand (Kshs 20,000).
(b) Section 67G: Power to protect the assets of an insurer
A new section 67G has been introduced under the Act , giving the Insurance Regulatory Authority power to take over the control of assets of financially unstable insurers and further hold the Directors of the Insurer jointly and severally liable for the recovery of the assets of a financially unstable insurer where it is established that the assets have been misappropriated.
(c ) Section 113-118 : On Transfers and Amalgamations Section 113-118 of the Act, is amended to allow the Insurance Regulatory Authority to approve the amalgamations and transfer of business by insurers. This function was previously exercised by the Minister for Finance through the Commissioner for Insurance. This will reduce the amount of time taken to receive approval for transfer by an insurer.
TRAFFIC ACT, CAP 403
The Finance Bill, 2011 seeks to amend the Traffic Act, Cap 403 to facilitate the use of information technology in the registration, licensing as well as other formalities and procedures under the Act. It proposes a new Section 6A that stipulates the procedure for the use of a computerized motor vehicle registration process and further decentralizes the motor vehicle registration process by introducing the use of authorized agents for this process. It provides that a Deregistration Certificate be given to the owner who intends to transfer a Motor Vehicle outside Kenya.
Section 9 is further amended to require the current registered owner of a vehicle to provide the Registrar of Motor Vehicle with the name, address, telephone number and email details of the new owner and shall deliver the registration certificate in respect of the vehicle to the new owner, who shall forward the registration certificate with the fees to the Registrar to facilitate the registration of the vehicle in the name of the new owner.
INCOME TAX ACT CAP 470 1. Section 5 : Income from employment
This section has been amended at subsection (4) to exempt Medical benefits or medical services utilized by the beneficiaries of an employee from being taxable on the employee.
2. Under Section 20: Unit Trusts and Collective Investment Schemes.
Under this proviso only Unit trusts and Collective investment schemes which are exempt from corporate tax are subject to withholding tax on interest and dividend income earned. This section has been amended to include a new investment instrument referred to as a Real Estate Investment Trust ( REIT). The Income on the R.I.E.T is proposed to be exempt from Corporate Tax . Further any Income earned on the sales of shares by the unit holders of the R.E.I.T shall also be exempt from Tax.
3. Section 41A(new):Agreements for Exchange of Information
A new Section 41A has been introduced proposing to provide a legal framework for the sharing of tax information which the kenyan Government will enter into with other Governments to enable them enforce domestic taxes. Section 41A provides " The Minister may by notice in the Gazette from time to time declare that arrangements specified in the notice, being arrangemenets made with the Government of any country with the view of exchanging information relating to income tax or other taxes of a similar character imposed by the laws of the country , shall notwithstanding anything to the contrary in this Act or any other written law, have effect in relation to income tax…"
The amendment was introduced because a major challenge for KRA in tackling abuse of the transfer pricing mechanism has been the lack of adequate financial information on a business overseas related parties resulting in heavy revenue losses from cross border party related transactions.
4. Part VIII is amended by inserting a new Section 51A This section states that all tax returns or records kept shall be prepared in the official language prescribed under Article 7 of the Constitution of Kenya as being English or Swahili and the currency shall be the Kenya Shilling.
5. Section 72©: Enhanced Penalty for underpayment of Instalment tax When charging a penalty on instalment tax, it is proposed that the Commissioner have authority to charge an instalment tax penalty upto a maximum amount of Kshs 1.5 million. Previously the penalty was limited to Kshs 500,000/=.
6. Section 132: Personal Identification Numbers It is proposed to amend this section to give the Commissioner powers to register and issue personal identification Numbers to any taxable person who fails to register on their own volition. This is aimed at including more persons in the tax net.
7. Under the Third Schedule: relating to Personal Reliefs and Taxes It is proposed to amend paragraph 5 to provide for an increase in amount of withholding tax on management, professional or training fees to resident service providers from 5% to 10%.
