The Finance Act, 2026 amends Section 19 of the Income Tax Act by replacing the term “life insurance fund” with “statutory fund.”
While this may appear to be a simple wording change, it is intended to align the Income Tax Act with the Insurance Act, ensuring both laws use the same legal terminology when referring to funds maintained by insurance companies.
What Is a Statutory Fund?
A statutory fund is a fund that an insurance company is legally required to maintain for its long-term insurance business. It contains premiums received from policyholders, investment income, and reserves set aside to meet future insurance claims and policy benefits.
These funds are established under the Insurance Act to protect policyholders by ensuring that money intended for long-term insurance obligations is kept separate from the insurer's other business operations.
What Has Changed?
- Replaces the term “life insurance fund” with “statutory fund.”
- Aligns the Income Tax Act with the Insurance Act.
- Ensures tax computations for long-term insurance business refer to the legally recognised statutory fund.
- Improves consistency between tax legislation, insurance regulation, and financial reporting.
Has the Taxation of Insurance Companies Changed?
No. The amendment does not introduce a new tax, change tax rates, or alter the method of calculating taxable income. It simply updates the terminology used in the Income Tax Act to match the Insurance Act.
Why Is This Important?
- Eliminates inconsistent terminology between tax and insurance laws.
- Provides greater legal certainty.
- Supports accurate tax compliance and financial reporting.
- Ensures taxable profits from long-term insurance business are computed using the legally recognised statutory fund.
Who Is Affected?
- Insurance companies
- Tax practitioners
- Actuaries
- Auditors
- Finance professionals within the insurance industry
Tax Home Kenya Insight
Section 19 is a harmonisation amendment, not a tax policy change. By replacing the outdated term “life insurance fund” with “statutory fund,” the Finance Act 2026 aligns the Income Tax Act with the Insurance Act, ensuring both laws refer to the same legally established fund used in regulating and taxing long-term insurance business.
Source: Finance Act, 2026 – Section 19 (Insurance Companies).
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