According to Section 19(5) of the income tax act CAP 470, A resident life Insurance company is taxed on amounts transferred from the Life fund for the benefit of shareholders. Kenindia transferred Sh. 25 million for the benefit of shareholders which was duly taxed. It further
transferred over Sh. 111 Million to a statutory reserve. The commissioner held that the amount transferred to statutory reserve was for the benefit of the shareholders and therefore taxable and for that reason he raised an assessment. This matter was later appealed in the TAT where the ruling was in favor of the commissioner.
The insurer went on further to appeal to the high court. In overturning the decision of the TAT, the high court argued that the life fund is a mandatory requirement for an insurance company, like the appellant, to carry on long term insurance business and is specifically provided for under section 45(1) of the Insurance Act to support that business and to protect policy holders. The Statutory Reserve and not the Life Fund and is therefore not chargeable to tax under the section 19(5) (b) of the ITA which only applies to a transfer from the life fund for the benefit of
shareholders.
Read the full case –
http://kenyalaw.org/caselaw/cases/view/192803/