https://new.kenyalaw.org/akn/ke/judgment/kehc/2026/12434

**REPUBLIC OF KENYA** **IN THE HIGH COURT OF KENYA AT NAIROBI** **COMMERCIAL AND TAX DIVISION** **INCOME TAX APPEAL NO. E167 OF 2024** **(AS CONSOLIDATED WITH NO. E160 OF 2024)** **MINET KENYA INSURANCE BROKERS LIMITED……..APPELLANT** **VERSUS** **COMMISSIONER OF DOMESTIC TAXES.…………….RESPONDENT** **JUDGMENT** **Introduction and background** 1. This judgment determines two consolidated appeals arising from the decision of the Tax Appeals Tribunal (the Tribunal) dated 9th May 2024.. The Appellant, (Minet) challenges the Tribunal’s finding that “hospital discounts” received from medical service providers constitute consideration for a taxable supply and are therefore subject to Value Added Tax (VAT). The Respondent, the Commissioner of Domestic Taxes, cross-appeals against the Tribunal’s setting aside of Excise Duty on the same amounts. Both matters were heard together by way of written submissions. 2. The dispute traces back to a tax audit conducted by the Commissioner into Minet’s tax affairs for the period running from January 2017 to December 2021, covering VAT, Excise Duty, Pay-As-You-Earn (PAYE), and Withholding Tax. Following the audit, the Commissioner issued an additional assessment on 7th October 2022, demanding Kshs. 67,380,627/= in Excise Duty and Kshs. 73,200,583/= in VAT, alongside statutory interest and penalties. 3. Minet lodged an objection on 2nd November 2022, and on 28th December 2022 the Commissioner rendered its Objection Decision, partially allowing the objection but confirming additional Excise Duty of Kshs. 53,514,443/= and additional VAT of Kshs. 50,461,388/=, plus interest and penalties. 4. Dissatisfied, the Appellant appealed to the Tax Appeals Tribunal. In its judgment dated 9th May 2024, the Tribunal partly allowed the appeal. It set aside the Excise duty and VAT assessment for September 2017, quashed the Excise Duty assessments on “hospital discounts” for the years 2018–2021, and directed that the VAT assessments for the same period be recomputed by excluding VAT attributable to the wrongly imposed Excise Duty. 5. The Tribunal further reduced the Excise Duty assessment on administration fees variance to revised principal tax, interest and penalty amounts, while setting aside the VAT assessments on those variances for 2019 and 2020. However, the Tribunal upheld the Respondent’s VAT assessment on the “hospital discounts”. 6. Still dissatisfied with the outcome, Minet Kenya Insurance Brokers Limited lodged an appeal, Appeal No. E167 of 2024 on 4th July 2024, seeking to overturn the Tribunal's decision on VAT. The Commissioner filed a Cross-Appeal (Appeal No. E160 of 2024) dated 1st July 2024, challenging the quashing of the Excise Duty assessment. **The Appeals** 1. In Income Tax Appeal No. E167 of 2024, Minet raises the following primary grounds: 2. *The Tribunal erred in law and fact by holding that the "hospital discounts" constituted consideration for a taxable supply subject to VAT.* 3. *The Tribunal erred in upholding the Respondent’s Objection Decision for the tax periods 2018 through 2021 regarding VAT on hospital discounts.* 4. *The Tribunal misdirected itself in finding that the Appellant had failed to discharge its burden of proving that the underlying services were exempt from VAT.* 5. *The Tribunal erred by subjecting hospital discounts to VAT despite finding that the activity was akin to invoice discounting—a financial service exempt from VAT under the First Schedule to the Value Added Tax Act, 2013.* 6. *The Tribunal misapplied both the law and the facts, thereby arriving at an erroneous conclusion.* 7. In Income Tax Appeal No. E160 of 2024, the Commissioner raises the following cross-appeal grounds: 8. *The Tribunal erred in concluded that the fees earned by the respondent (from medical service providers) do****not****come from its licensed activities, meaning they wrongly said Excise Duty does not apply.* 9. *The Tribunal failed to appreciate that the fees fall within the ambit of licensed scheme administration activities pursuant to Section 150A of the Insurance Act, making them excisable under the Excise Duty Act, 2015.* 10. *The Tribunal failed to recognize that, without Minet’s licensed medical insurance administration services, the fees would not exist.* 11. *The Tribunal acted beyond its jurisdiction by re-characterizing Minet’s services as "invoice discounting/financial services," a characterization that was neither pleaded nor supported by the record.* 12. *The Tribunal erred in directing the Commissioner to adjust its VAT assessment by removing the Excise Duty component based on the flawed premise that Excise Duty was not payable..* 13. *The Tribunal failed to properly consider the KRA's written submissions and responses when making its decision.* 14. *The Tribunal misapplied both the law and the facts, leading to an unjust decision.* 15. Parties filed written submissions. The appellant’s submissions are dated 14th November 2025 and those of the Respondent 30th January 2026. **Appellant’s submissions** 1. Minet submitted that "hospital discounts" represent standard commercial early-payment discounts negotiated in good faith under freedom-of-contract principles (*pacta sunt servanda*). Counsel relied on ***Abdul Jalil Yafai v Farid Jalil Mohammed [2015] eKLR*** and ***National Bank of Kenya Ltd v Pipeplastic Samkolit (K) Ltd & Another [2002] 2 EA 503*** to argue that courts and tribunals cannot rewrite agreements freely executed between commercial parties. 2. Minet contended that the Tribunal breached the principle of strict interpretation of tax statutes by reading taxable supplies into contractual discounts where no clear statutory language exists. In support, Minet relied on ***Mount Kenya Bottlers Ltd & 3 Others v Attorney General & 3 Others [2019] eKLR***, ***Republic v Commissioner of Domestic Taxes ex parte Barclays Bank of Kenya Ltd [2012] eKLR***, and the classic canon in ***Cape Brandy Syndicate v Inland Revenue Commissioners [1921] 1 KB 64***, as approved in ***T.M. Bell v Commissioner of Income Tax [1960] EA 224***. Counsel also cited Indian jurisprudence—***Euro RSCG Advertising Ltd v Commissioner of Service Tax (2007)*** and ***Kerala Publicity Bureau v Commissioner of Central Excise (2008)***—for the proposition that prompt settlement discounts do not represent taxable service consideration. 3. It was further submitted that it had discharged its evidential burden under Section 56(1) of the Tax Procedures Act, 2015 by demonstrating that these discounts were accounted for under Corporation Tax rather than VATable supplies. Citing ***Golden Cara Investments Ltd v Commissioner of Domestic Taxes [2024] eKLR*** and ***Kenya Revenue Authority v Man Diesel & Turbo SE Kenya [2021] eKLR***, Minet argued that the evidential burden had shifted to the Commissioner, who failed to rebut it. **Respondent's** **submissions** 1. On VAT, Counsel for the Commissioner submitted that Minet’s medical insurance administration services are taxable. While pure insurance contracts are exempt, "management and related insurance consultancy services" are expressly excluded from exemption under the First Schedule to the Value Added Tax Act, 2013. The Commissioner relied on ***KCB Insurance Agency Ltd v Commissioner of Domestic Taxes (Income Tax Appeal E087 of 2021)*** to affirm that scheme administration services fall squarely within taxable parameters. 2. On Excise Duty, the Commissioner contended that the discounts are fees earned by Minet as a "financial institution" in the course of its licensed activities under Section 150A of the Insurance Act. Counsel argued that the Tribunal erred by inventing the concept of "invoice discounting" to relieve Minet of Excise Duty obligations, ignoring the reality that these sums represent administration fees directly connected to medical claims processing and provider management. **Analysis and determination** 1. The Court has carefully considered the record of appeal, the statement of facts, the parties’ respective submissions, authorities and the impugned judgment. 2. Two main issues arise for determination: 3. *Whether the Tribunal erred in holding that the "hospital discounts" constituted consideration for a taxable supply and were therefore subject to VAT.* 4. *Whether the Tribunal erred in setting aside the Excise Duty assessment on the same amounts.* *On Whether the "Hospital Discounts" are subject to VAT* 1. The Minet argues the hospital discounts it received are commercial discounts or incentives offered by hospitals in return for early settlement of invoices, and do not arise from any distinct supply of services by it. The Commissioner, on the other hand, contends that these amounts represent fees earned by Minet for the administration of medical insurance schemes, which is a taxable supply. 2. The Tribunal, in its analysis at paragraphs 174 to 176, characterized the transaction as a financial service akin to invoice discounting. The Tribunal observed: **“The Tribunal's considered view of the underlying transaction that gives rise to the 'hospital discounts' is that the Appellant undertakes a financial service akin to invoice discounting...The Tribunal observes that the transaction which the Appellant undertakes to give rise to 'hospital discounts' can be classified as trade financing through a service similar to invoice discounting.”** 1. The Tribunal further found that by applying its clients' funds to pay a portion of the invoice amounts due to medical service providers, and earning a consideration referred to as "hospital discounts", the Appellant was providing a financial service to medical service providers for consideration. The Tribunal concluded that this was a supply of services under Section 2 of the VAT Act, and being neither exempt under the First Schedule nor zero-rated under the Second Schedule, it was taxable at the general rate. 2. I find the Tribunal's reasoning on this point to be sound. The definition of a "supply" under Section 2 of the VAT Act, includes all forms of supply of goods and services by a person in the course of business. Section 5 of the Act imposes VAT on every taxable supply made by a registered person in Kenya. 3. The definition of "supply of services" under Section 2 of the VAT Act expressly includes: (a) the performance of services for another person; (b) the grant, assignment, or surrender of any right; (c) the making available of any facility or advantage; or (d) the toleration of any situation or the refraining from the doing of any act. 1. I find no fault in the Tribunal's finding that Minet provides a clear "facility or advantage" to medical service providers namely, accelerated cash flow and liquidity through early claim settlements. This falls within the statutory definition of a supply of services under Section 2 of the VAT Act. 2. Minet is a licensed insurance intermediary and medical insurance provider under the Insurance Act. It is registered for VAT. The evidence on record shows that Minet receives medical claims, validates them, and expedites payout using its operational infrastructure under Section 150A of the Insurance Act. The retention of a percentage of the invoiced amount (*the discount*) is the direct consideration earned for providing this service. 3. While financial services under Part II of the First Schedule to the VAT Act are generally exempt, specified administrative and trade-financing services of this nature do not enjoy statutory exemption. Minet failed to discharge its burden under Section 56(1) of the Tax Procedures Act, 2015 to demonstrate a specific statutory provision exempting these administrative earnings from VAT. The Tribunal was therefore correct in upholding the VAT assessment on "hospital discounts." Minet’s appeal on this ground must fail. #### *On Whether the "Hospital Discounts" are subject to Excise Duty* 1. The second issue is whether the Tribunal erred in setting aside the Excise Duty assessment. Excise Duty is governed by the Excise Duty Act, 2015. Under Part II of the First Schedule, financial institutions are subject to Excise Duty on "other fees" charged in respect of their licensed activities. The provision defines "other fees" as: ***“includes any fees, charges or commissions charged by financial institutions relating to their licensed activities, but does not include interest on loan or return on loan or any share of profit or an insurance premium or premium based or related commissions specified in the Insurance Act or regulations made thereunder;”*** 1. The Commissioner's case is that the hospital discounts are fees earned by Minet in the course of its licensed activities as a financial institution (medical insurance provider) under Section 150A of the Insurance Act, and are therefore subject to Excise Duty. 2. The Tribunal, at paragraphs 178 to 180, found that the "hospital discounts" were not subject to Excise Duty for the following reasons: ***“The Tribunal keenly observes that the 'hospital discounts' that the Appellant earns for services which it provides to the medical service providers are not fees related to Appellant's licensed activities...The Appellant is licensed under the Insurance Act as an insurance broker to undertake insurance brokerage and as a medical insurance provider to provide healthcare insurance administration services. The Tribunal notes that the Appellant is not licensed to provide invoice discounting services or financial services similar to invoice discounting services. The Appellant's provision of trade financing to earn the consideration labelled 'hospital discounts' is not related to its licensed activities.”*** 1. The Tribunal quashed the Excise Duty assessment after reasoning that Minet was not specifically licensed under the Insurance Act to provide "invoice discounting" or "trade financing." Firstly, its description of the service as "invoice discounting" was introduced *suo motu*, by the Tribunal without any foundation in the pleadings or evidence submitted by either party. It is a settled principle of law that judicial and quasi-judicial bodies must determine disputes on the basis of the case pleaded by the parties. (See **Independent Electoral and Boundaries Commission & another v Mule & 3 others (Civil Appeal 219 of 2013) [2014] KECA 890 (KLR).** 2. Secondly, the true test under Part III of the First Schedule to the Excise Duty Act is not whether an entity holds a specialized standalone license for discounting, but whether the fee earned relates to its licensed activities.. 3. Thirdly, Minet's primary role as a licensed medical insurance provider and scheme administrator under Section 150A of the Insurance Act is what enables it to receive, verify, and settle claims from hospitals. The fee or discount earned stems directly from these licensed administrative operations. And fourthly, the statutory definition of "other fees" in the Excise Duty Act is deliberately broad. It captures all non-premium fees, charges, and commissions derived from licensed operations. 4. This court is guided by the case of **Commissioner of Domestic Taxes & another v Chase Bank Kenya Ltd (In Receivership) & another [2021] KEHC 28 (KLR)** where Mativo J, (as he then was) while citing the case of Cape Brandy Syndicate v IRC 1 KB 64, 71 stated that; ***“Tax laws should be interpreted in manner so as to maintain a balance between interest of both revenue collector and the assessee. The principle of strict interpretation of taxing statutes was best enunciated by Rowlatt J in his classic statement in Cape Brandy Syndicate v IRC:*** ***“In a taxing statute one has to look merely at what is clearly said. There is no room for any intendment. There is no equity about a tax. There is no presumption as to a tax. Nothing is to be read in, nothing is to be implied. One can look fairly at the language used.”*** 1. Therefore, I find that the tribunal erred in law by holding that "hospital discounts" were outside the scope of Excise Duty. In the circumstances, I find the Commissioner's cross-appeal succeeds on this point. 2. For the reasons set out above, I make the following orders: 3. ***The Appellant's appeal in Income Tax Appeal No. E167 of 2024 is hereby dismissed.*** 4. ***The Commissioner's appeal in Income Tax Appeal No. E160 of 2024 is hereby allowed.*** 5. ***The decision of the Tax Appeals Tribunal dated 9th May 2024 is varied as follows:*** 6. ***The Commissioner's Excise Duty assessment on "hospital discounts" in the sum of Kshs. 32,927,502/=, together with accrued statutory interest and penalties for the tax years 2018, 2019, 2020, and 2021, is hereby reinstated in full.*** 7. ***The order of the Tribunal directing the Commissioner to recompute the VAT assessment by excluding the Excise Duty component is set aside.*** 8. ***The VAT assessment on the "hospital discounts" for the tax years 2018, 2019, 2020, and 2021 is reconfirmed.*** 9. ***The Appellant (Minet Kenya Insurance Brokers Limited) shall bear the costs of both appeals.*** It is so ordered. **JUDGMENT** delivered virtually, dated and signed at **NAIROBI** This **31st** day of **July** 2026. **PETER M. MULWA** **JUDGE** **In the presence of:** *Ms. Araru h/b for Ms. Mwaniki* for Appellant *Ms. Njoroge h/b for Mr. Nyapara* for Respondent Court Assistant*: Lispa*