S (On Application Of Registered Trustees Of Insurance Association Of Malawi) v Commissioner General Of Malawi Revenue Authority (Judicial Review Case Number 02 OF 2025) [2026] MWHCRev 2 (16 September 2026)

- IN THE HIGH COURT OF MALAWI REVENUE DIVISION PRINCIPAL REGISTRY Judicial Review Case Number 02 OF 2025 BETWEEN: THE STATE (On the Application of the REGISTERED TRUSTEES OF THE INSURANCE ASSOCIATION OF MALAWI CLAIMANT -AND- COMMISSIONER GENERAL OF MALAWI REVENUE AUTHORITY RESPONDENT Coram JUSTICE CHIMBIZGANI MATAPA KACHECHE Mpaka of Counsel for the Applicant L Sauti Phiri of Counsel for the Defendant Kalasa Kenani of Counsel for the Defendant Chimang’anga Court Clerk JUDGEMENT The application . In these judicial review proceedings, commenced by permission of this Court on 7% January 2025, the claimants challenge the “determination of the Respondent contained in the Respondent’s letter to the Applicant ... directing that within the insurance industry Incurred But Not Reported (IBNR) claims reserve is a general reserve for tax purposes not allowable as a deduction under the Seventh Schedule of the Taxation Act notwithstanding the terms of the said Seventh Schedule as read with the Insurance (Reserving Requirements for General Insurers and Re-Insurers) Directive, 2019 made under the Insurance Act and binding on the Claimants’ members making up the insurance industry in Malawi.” . The challenge is founded on the grounds that the decision is unlawful, ultra vires to the respondent and unreasonable in the Wednesbury sense for being unlawful and lacking justification for the reasons provided. In addition, the claimants are also aggrieved that the Respondent has failed “to wndertake adequate consultation to protect the legitimate expectation of the general insurance industry that IBNR will continue to be treated as an allowable deduction for tax purposes in the industry.” . The claimants seek the following reliefs: a. Adeclaration that on the true construction of section 79 of the Insurance Act as read with sections 2 and 34(8) of the Financial Services Act and the provisions of the Insurance(Reserve Requirement and General Insurers and Re-Insurance) Directive, 2019 (the 2019 Insurance Directive), members of the Applicant are, at the pain of statutory sanctions, bound to make provision for IBNR Claims Reserve in accordance with the terms of clause 6(7) of the 2019 Insurance Directive in every financial year; b. A declaration that on the true construction of the provisions of the 2019 Insurance Directive and the Seventh Schedule to the Taxation Act, Cap 41:01 of the Laws of Malawi (the Schedule), the said IBNR Claims Reserve calculated in accordance with the terms of clause 6(7) of the 2019 Insurance Directive is a specific and actually incurred technical reserve not a general provision for each general insurer in the general insurance industry for each financial year by reason of which it is an allowable deduction under the Schedule. c. Adeclaration that in the premises of the declarations hereinabove it is untawful and ultra vires the Respondent and unreasonable in the Wednesbury sense for the Respondent to make the determination directing that the IBNR claims reserve is a general reserve for tax purposes not allowable as a deduction under the Schedule notwithstanding the terms of the said Schedule as read with the 2019 Directive made under the Insurance Act, Cap 47:01 of the Laws of Malawi, and binding on the Claimant’s members making up the insurance industry in Malawi in that such determination is made without taking into account relevant legal considerations. An order nullifying the determination of the Respondent directing that the IBNR Claims Reserve is a general reserve for tax purposes not allowable as a deduction under the Schedule. Order for costs and other orders and directions that the Court may deem necessary in the circumstances. . In his defence, the defendant has raised preliminary issues as follows: a) b) ) d) There are no arguable issues as the determination of the Commissioner General is based on the law; There are no arguable issues as the Commissioner General thoroughly consuited with concerned parties before making his determination; The Applicant has an alternative remedy by way of an appeal to the Special Arbitrator under sections 97 and 98 and the Eighth Schedule to the Taxation Act which the Applicant has not exhausted; This matter is not amenable to judicial review as it is attacking the determination (based on the law) when judicial review is about the process not the merits of the decision. . The defendant also denies that his determination is unlawful as the same is a clarification on taxation of IBNR Claims Reserves provided for under the Taxation Act. . The Defendant denies having acted ultra vires and unreasonable. The determination is based on the correct interpretation of the Taxation Act and was made after hearing the Applicant and after thorough consuMtations and therefore, is in no way unreasonable in the Wednesbury sense. - The facts 7. The facts in these judicial review proceedings are clear and largely uncontested except for some timelines on which I will comment on later. 8. One of the claimants’® objectives is to protect, promote and advance the common interest of their members and of the general insurance industry. 9. Under and by virtue of section 79 of the Insurance Act, on 14" June 2019, the Registrar of Financial Institutions issued the Insurance (Reserve Requirement and General Insurers and Re-Insurance) Directive, 2019 a directive which is binding on members of the claimant. Among others the directive requires that General Insurance Operatots must provide for various reserve funds calculated in a presctibed manner. Paragraph 6 of the directive provides as follows: (1) An insurer shall establish and maintain, at a minimum, the following technical reserves in respect of each class of insurance business — (a) The unexpired risk reserve, or the sum of unearned premium reserve and premium deficiency reserve whichever is higher; (b) Outstanding claims reserves; and (¢) Incurred but not reported claims reserves In respect of the incurred but not reported reserve the method of determination is provided for in subparagraph 7 as follows: (a) Using an actuarial valuation method that takes into account historical claims experience; or (b) Using a percentage of outstanding claims at the valuation date, at the applicable rate of not less than 20%; or (c) Any other method approved by the Registrar. 10. Like any other citizen the association’s members are expected to comply with laws, including the directive referred to above. According to the claimants, all along, dating back to 1% April, 1945 IBNR Claims Reserve has been considered and accounted for in general insurance industry as an allowable tax deductible expense owing to its nature as a technical reserve when provisions of the Taxation Act in sections 11, 28 12 13. 14, and 63 and its Schedule are considered. Accordingly, the practice developed over the years that IBNR Claims Reserve was considered as an allowable tax deductible expense. - It appears that sometime between the issuance of the 2019 Directive and February, 2024, the defendant, through his officers audited some insurers and discovered that the IBNR Claims Reserves were being deducted from the insurers income for tax purposes. The defendant added back the reserves, demanded taxes and charged penalties on them. In response, the claimant, through their consultant Grant Thornton sought audience of the defendant regarding taxation of insurance businesses. Basically they wanted to have a common understanding of the Schedule. It appears the meeting did take place sometime in July, 2024 where the consultant was asked to make a submission of its presentation on their understanding of taxation of insurers. At this meeting, it appears that it was agreed that the applicable law for tax treatment of the insurance industry is section 63 as read with the Schedule. On the issue of IBNR claims reserve, the defendant was of the opinion that it is not a deductible reserve. The claimants were clearly not satisfied with the result of that initial engagement. Their president reported to the Registrar of Financial Institutions and requested an appointment with him through a letter dated 20™ August 2024. From the content and tone of the letter, the claimants thought that the defendant was applying the wrong law (or Schedule as per the letter). In the claimants® opinion the defendant did not understand the insurance industry. A meeting followed where the defendant, his officials, a representative of the Registrar of Financial Institutions and the claimants’ representatives were present. A technical committee was set up which discussed the issue in subsequent meetings. Meanwhile the defendant suspended the enforcement of his decisions touching on the issue. The result of those meetings, as can be gleaned from the minutes was that there was generally an agreement that the insurance industry is taxed under section 63 and that the IBNR claims reserve fund is not recognised anywhere under the said section 63 or, by extension, the Schedule. 15. The last of those meetings took place on 26" September, 2024 where it was agreed that there was “a gap which needed to be addressed to ensure harmonization of the Taxation Act and the financial services laws”. The Deputy Commissioner Technical undertook to revisit the matter and make recommendations to the Defendant for his final determination of the matter. 16. On 17* December, 2024, through a letter authored on his behalf by the Commissioner Domestic Taxes, the Defendant communicated that the IBNR claims reserve is a general reserve for tax purposes and is not an allowable deduction under the Schedule. Timelines 17. Before I deal with the application I find it necessary to deal with the issue of timelines first. The Claimants suggest by their narration of the background that the defendant has allowed the IBNR claims reserves deductions since 1945 when the Schedule was first promulgated. According to the claimants it is just recently in 2024 when the defendant suddenly decided to change policy without adequate consultations. 18. On the other hand, the defendant through the sworn statement of Emily Chimuji simply states that the defendant discovered that some of insurance companies were deducting IBNR claims reserves. He has not stated when the same was discovered save to state that it was during audit exercises. From the interactions between the parties it can safely be concluded that the said discovery, if indeed it was a “discovery” happened somewhere between 2019 and 2024. This statement though, suggests that if there was such practice it was not allowed as a matter of policy on the part of the defendant. The practice was clearly discovered during an audit and, immediately, the defendant’s officers decided that IBNR claims reserve is not an allowable deduction. That is why the Claimants initiated the consultation process. It was not a matter of changing a policy. 19. That stated however, it is this courts position that whatever was the case before or whenever the change happened, whether it was by policy or practice, this need not be an issue. The law does not give the defendant any discretion on what and what not to tax except in very isolated circumstances. The defendant is bound to implement only what the law expressly mandates him to implement. It means that if the defendant discovered that indeed there was a practice which was not allowed by the Act he was duty bound at any point to correct the error. In such case what would be needed is not consultation but notice to the stakeholders of the error and intent to implement the correct law as long as such notice is adequate. The law on Judicial Review 20. We start by reminding ourselves that judicial review, which is covered under Order 19 Rule 20 (1) (b) of the Courts (High Court) (Civil Procedure) Rules, 2017 covers review of a decision, action or failure to act in relation to the exercise of a public function in order to determine (i) its lawfulness: (ii) its procedural fairness: (iii) its justification of the reasons provided, if any; or (iv}) bad faith, if any where a right, freedom, interests or legitimate expectation of the applicant is affected or threatened. 21. The law is settled on the purpose of judicial review. I will specifically refer to the English case of the Chief Constable of North Wales Police v Evans [1982] 1 WLR 1155 at 1160 where it was said: “It is important to remember in every case that the purpose of [the remedy of judicial review] is to ensure that the individual is given fair treatment by the authority to which he has been subjected and that it is no part of that to substitute the opinion of the judiciary or of individual judges for that of the authority constituted by law to decide the matters in question.” 22. This statement was referred to in the case of the State v Chief Secretary to the President and Cabinet, exparte Muluzi [2011] MLR 357 where at 364-365 the judge said: The function of the courts, including this Court therefore is not to act as an appellate tribunal in relation to decisions complained against. It is also not to interferc in any way with a public officer’s/office’s exercise of any power or discretion conferred on it unless the same has been exercised beyond jurisdiction or unreasonably. In other words, the courts must not do that which the public authority whose decision is the subject of review is by law mandated to do.” 23. In the case of The State v Chief Secretary to the President and Cabinet, exparte Muluzi [2011] MLR 357 referred to above, at page 364 the judge said: A decision of a public authority may therefore be quashed where the authority acted without jurisdiction or exceeded its jurisdiction, or failed to comply with the rules of natural justice where such rules are applicable, or where there is an error of law on the face of the record or the decision is unreasonable in the Wednesbury sense. 24. The judicial review procedure is meant to actualise the right to administrative justice guaranteed under section 43 of the Constitution of the Republic of Malawi. All these grounds can be seen clearly upon the reading of that provision. 25. Looking at the grounds upen which this particular application is brought, they fit in three grounds allowable by the Civil Procedure Rules. The ultra vires ground is a ground that is subsumed in the unlawfulness ground. Unreasonableness is another ground. The Wednesbury sense just go the degree of the unreasonableness. Since the claimant has already stated unlawfulness he need not include the unlawfulness in the unreasonableness. Apart from that, lack of justification of the reasons provided simply goes to the unreasonableness. Lack of procedural faimess seems to be the other ground in my view as the as the claimants are claiming lack of adequate consultation. Of course this ground also overlaps with the unlawfulness ground since the expectation of consultation is grounded on the Constitutional provisions, that is to say section 12 and 13. Preliminary issues raised by the defendant 26. By the preliminary issues raised by the defendant he wishes this court to discharge the leave for judicial review without getting into the arguments on the merits. Leave for judicial review can only be discharged if it was wrongly granted e.g. for the application being frivolous, vexatious and abuse of court process, where there is clearly no arguable case, where the applicant lacks standing to bring judicial review proceedings and where there is an alternative remedy. I will start with the issue of alternative remedy although it is the third on the defendant’s list. This is because as we will see later the other preliminary issues are tied to the merits of the application and it will be more convenient to transition directly from them to the merits. Alternative remedy 27. The defendants have asked this court to dismiss the application on the ground that the claimants have an alternative remedy. It is trite law that a claimant should not be allowed to challenge a decision through judicial review if they have an alternative remedy. The defendant argues that the applicant has an alternative remedy, i.e. an appeal to the Special Arbitrator under section 98 of the Taxation Act and an appeal to the High Court under the Eighth Schedule of the same Act. It has been argued that the applicant did not lodge an appeal to the Special Arbitrator, thereby undermining the powers of the Special Arbitrator. 28. This argument is of no merit. Decisions that are appealable to the Special Arbitrator are decisions made under section 97 of the Act. Those are decisions made on assessment or in relation to assessment. The decision being challenged in this court is a general interpretation of the law not related to a particular assessment. It is a decision made after a consultative process between the claimants, the defendant and the Registrar of Financial Institutions. The claimants are not a tax payer. They are an association generally protecting the interests of their membership. 29. Whereas the tax assessment decisions in respect of the individual insurance companies are appealable, the decision in this case is not a tax assessment decision. This decision can only be reviewed by way of judicial review. This ground of defence or objection is dismissed. 30. 31 Whether the decision is not amenable to judicial review for being a decision on a matter of interpretation of law The other ground, which appeared as the first ground of preliminary objection was that there are no arguable issues as the determination is based on the law. One of the grounds allowed for judicial review and relied upon by the claimants in this case is that the decision is unlawful. Earlier | also pointed out that the ground of uitra vires is subsumed in the ground challenging the lawfulness of the decision. The ground of unlawfulness is looked at from two angles: the lack of or exceeding jurisdiction and also where the public body acts apparently within its jurisdiction but commits an error of law on the face of the record. The law was comprehensively discussed in R v Northumberland Compensation Appeal Tribunal, ex parte Shaw [1952} 1 KB 338. Neither the Constitution nor the CPR draws any boundaries between jurisdictional and substantive lawfulness of decisions. In fact the House of Lords decision in Anisminic Ltd v Foreign Compensation Commission [1969] 2 AC 147 went further to state thata decision made upon an error of law is ultra vires the decision maker as no decision maker is allowed to make a decision that is illegal. It follows that this court can look at the decision of public body and determine if the interpretation of the law is correct even if the basis of the decision is only the public body’s interpretation of the law. The only catch is that “error on the face of the record” means that the error must be obvious. In the Kenyan case of Nyamogo and Nyamogo Advocates Vs. Kago (2001) 1EA 173, the Kenyan Court of Appeal put it thus: “An error apparent on the face of the record cannot be defined precisely or exhaustively, there being an element of indefiniteness inherent in its very nature, and it must be left o be determined judicially on the facts of each case. There is a real distinction between a merely erroneous decision and an error apparent on the record. Where an error on a substantial point of law stares one in the face, and there could reasonably be no two opinions, a clear case of error apparent on the face of the record would be made out. An error which has to be established by a long drawn process of reasoning or on points where there may conceivably be two opinions, can hardly be said to be an error apparent on the face of the record. Again, if a view adopted by the court in the original record is a possible one, it cannot be an error apparent on the face of the record even though 10 another view was also possible. Mere error or wrong view is certainly no ground for review although it may be for an appeal.” 32. As such an error that is not so obvious, requiring complex legal analysis to be discovered cannot render the decision of the public body to be quashed. This ground of objection is thus dismissed. Whether the application should not be allowed as it is attacking the merits when judicial review is about the process 33. The defendants have submitted that this “matter is not amenable to judicial review as it is attacking the determination (based on the law) when judicial review is about the process not the merits of the decision.” 34. This is an oft misunderstood concept of judicial review. Although it is said that judicial review is concerned with the procedure and not merits of the decision, procedure relates only to the ultimate remedy provided to the claimant. The court still has to analyse the decision and its reasons to find whether it is unlawful, unreasonable, tainted with bad faith etc. To do this it would be required of the court to assess the merits of the decision to some extent. All that it is not allowed to do is to replace public body’s decision with the courts own decision. The typical remedies granted in judicial review are only meant to make the decision maker correctly handle the issue. That is to say a quashing order nullifies, voids or cancels an unlawful decision. In the words of Lord Cairns in Walsall Overseers v London and North western Railway Company (1878) 4 App Cas 30 at 39 the court is entitled to examine the decision “and if there be an error on the face of it, to quash it — not to substitute another order in its place, but to remove that order out of the way, as one which should not be used to the detriment of any of the subjects of her majesty”. A mandatory order forces a public body to perform a legal duty it has failed or refused to do; a prohibiting order stops a public body from committing an anticipated unlawful act or exceeding its powers while a declaration merely states the legal rights of the parties or the invalidity of a decision without forcing coercive action. Otherwise the court may have looked at the 11 35. 36. 37. 38. merits of the decision in one way or the other. The only ground on which the court will not consider the merits of the decision at all is procedural fairness as in such a case the court will only examine whether rules of natural justice were followed. Whether the application should be thrown out on the grounds that the defendant thoroughly consulted the with concerned parties before making his determination This preliminary objection goes to the merits of the application as the claimants are actually claiming that the defendant did not consult. I will thus deal with it when dealing with eth issue of consultation generally. Consideration of the merits The claimants have presented an omnibus ground for that the decision complained of is unlawful, ultra vires to the respondent and unreasonable in the Wednesbury sense for being unlawful and lacking in justification for the reasons provided. However, looking at the formulation of the unreasonableness ground, listening to their presentation and reading their arguments there is one issue that has prominently been highlighted: “whether the respondent has correctly appreciated and discharged his duty to promote and operate subject to rule of law contained not only in the Taxation Act but also the Insurance Act and the Financial Services Act of the Laws of Malawi as read with section 12(f) of the Constitution”. Now, the framing of this issue is mouthful. Clearly what the claimants are submitting as an issue is whether the defendant has correctly applied the law on taxation of insurance businesses. The claimants have also submitied that before changing the policy and practice on the “accounting treatment of IBNR”, the Respondent has failed to undertake adequate consultation to protect the legitimate expectation of the general insurance industry that IBNR will continue to be treated as an allowable deduction for tax purposes in the industry. This issue goes to the fairness of the decision vis a vis lack of consultation before change of the policy before I go on to deal with the omnibus issue of 12 unlawfulness and unreasonableness. 1 will thus start with this and end with the unlawfulness/ unreasonableness ground. Procedural fairness 39. Procedural faimess merely requires that before a decision that affects the rights, interests or legitimate expectations of an individual is made, that individual must be given a fair hearing. Moreover, Sections 12 (c) and 13 (o) of the Constitution of the Republic of Malawi provide for democratic accountability, transparency, and participation of the people as guiding principles of governance. Thus whenever public officers wish to introduce new policies or laws there is need to consult those affected to ensure fair participation on their part. 40. Although the claimants claim that the defendant did not consult stakeholders, they contradict themselves in their background facts by showing that there were consultations before the defendant came up with his ruling. Although the initial decisions when dealing with individual insurance companies came suddenly, during the audit process, those decisions are not the ones being challenged in this court. The decision being challenged in this court is the decision that the defendant communicated after the consultative process. Although that consultative process was initiated at the request of the claimants, it was a consultative process still and the claimants cannot be heard to say there was no consultation. 41. The Claimants have tried to impress on this court that the consultation was not adequate or that it was ongoing by the time the defendant made his determination. However, the claimants have not suggested what adequate consultations mean in the context. Further, the minutes of the tripartite meeting held on 26% September, 2024 concluded with an undertaking by the Deputy Commissioner Technical to revisit the matter after the deliberations and make recommendations to the Defendant for his final determination. Clearly, from this meeting onwards, the stakeholders would be expecting to hear the final position to be taken by the defendant and not a further consultation engagement. It is my finding that the defendant did consult the stakeholders in this case. 13 42. 43. 45. 1 need to mention one more aspect of the claimants’ concerns on this matter. This is the fact that the Defendant was not personally present during the meeting on 26™ September, 2024. They also say his letter is silent on the exact issues that he considered. They are wondering if the Defendant considered all relevant material including foreign case law, expert presentations by Grant Thomton and any other material presented on the last meeting. We need to realise that public officers act through their subordinates except in cases where they are expressly required by law to personally act. The Claimants have not claimed or shown that a consultative process is such an instance. It would be very onerous to require public officers to personally attend to all functions even in instances where they can delegate. It would bring inefficiencies in the functioning of the office. In this case I find no fault that the defendant did not personally attend the meeting. Nor do I think he needed to specifically refer to all materials that were before him at the time he made the decision. All he needed to provide were reasons for the decision. The letter dated 17* December, 2024 clearly shows that the defendant considered the provisions of the Seventh Schedule to the Taxation Act and that he based his decision on its interpretation and nothing else. In my view the defendant was entitled to do so. The only issue would be whether the given reason or reasons were justifiable. ‘Whether the decision is unlawful and unreasonable in the Wednesbury sense . 1 earlier outlined what is required for the court to quash a decision based on the ground that it was unlawful. Concerning unreasonableness in the Wednesbury sense, the case of Associated Provincial Houses Ltd v Wednesbury Corp {1948] 1 KB 223 does provide the meaning. The courts can only interfere if a decision is so unreasonable that no reasonable authority could ever come to it. Examples are bad faith (which is a separate ground in the CPR) perversity-Pulhofer v Hillingdon LBC [1986] 3 All ER 353), absurdity implying that the decision-maker has taken leave of his senses - R v Secretary of State for the Environment ex parte Notts CC [1986] AC 240). In Council of Civil Service Unions v Ministers for the Civil Service [1985] AC 374 Lord Diplock equated 14 46. 47. 48. 49. unreasonableness to irrationality which he described as applying to a decision which is so outrageous in its defiance of logic or accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it. The CPR merely demands that the reasons given for the decision must be justifiable. The claimants give a summary of their position being that on the true reading, purpose and intent of several statutory provisions of the Acts of Parliament and directives and schedules under the Acts, the respondent has erred in law by finding that the IBNR claims reserve is a general reserve for tax purposes not allowable as a deduction under the seventh schedule of the Taxation Act. Thus, according to the claimants, in making the determination the respondent failed to correctly interpret the 7% Schedule to the Taxation Act and regarded it as constituting IBNR as a general reserve when in fact and in law it is a specific reserve constituting an allowable deduction in tax laws; failed to account for the import of the Insurance (Reserving Requirements for General Insurers and Re-Insurers) Directive, 2019 in so far as it clearly defines the components of IBNR that make it a specific and obligatory reserve under the financial services laws; failed to have regard to the binding nature of the obligations and the risk of sanctions to the Applicant’s members under financial services laws which make the provision certain and susceptible of more or less accurate estimate and therefore specific to each general insurer. The claimants have submitted that the Defendant owes the claimants the constitutional and statutory duty to only exercise duties and functions allowed by them under the law and not to take actions that arbitrarily affect the rights and duties of the public interest under the law. The claimants submit there is need to strike a balance between the legal rights and obligations of the insurance industry and applicant’s members under the Insurance Act and the Insurance (Reserve Requirement and Genera! Insurers and Re-Insurance) Directive, 2019 on the one hand and the Taxation Act and Seventh Schedule: 15 50. 51, 52. 53. Determination of Taxable Income or Assessed Losses Derived or Incurred in Carrying on Insurance Business on the other. In their submissions the claimants have dwelt much on the obligations of their members under the 2019 directive. Indeed, it is clear that the claimants’ members have obligations under the 2019 directive. If they fail to oblige they face a penalty. The reserve is a requirement in their insurance business. The question that the claimants pose is: “did the Defendant, in his determination, properly account for the import of the Insurance (Reserving Requirements for General Insurance and Re-Insurance) Directive, 2019 in so far as it clearly defines the components of IBNR?” It is obvious on the facts that the defendant did not consider those factors. Even in this court the Defendant has not challenged those assertions. Ordinarily, that lack of consideration would have amounted to unreasonableness which would suffice for the decision to be nullified by a quashing order. But this would only be the case if I were to find that the defendant had a discretion to exercise on the matter. However, as L have stated earlier in this judgment, issues of taxation are matters not of administrative policy, discretion or practice. They are matters of law or legal policy. As such to determine the dispute we need to strictly consider the law and not practice. The Taxation Act is the principal legislation on general taxation. Insurance businesses are taxed under section 63 which provides as follows: The taxable income or assessed loss of any person carrying on the business of insurance, other than life insurance, including funeral insurance shall, in so far as it is derived from such business, be determined in accordance with the provisions of the Seventh Schedule. This provision is clear. You cannot tax any income derived from insurance business other than by reference to Section 63. This provision does not allow for any policy considerations and does not give the Commissioner General any discretion in the matter. 54. Section 63 acts as road sign directing the implementer to where he will find the substance he is looking for. The substance is in the Schedule. The Schedule, insofar as is relevant provides as follows: Paragraph 4 "The taxable income or assessed loss of an insurer in respect of short-term insurance business other than life assurance shall be determined by charging the losses, expenses and deductions in respect of his short-term insurance business which are specified in paragraph 5 against the sum of: (2) Premiums received in Malawi in respect of his short-term insurance business; and (b) Amounts, other than premiums, received in Malawi from the carrying on of its short term insurance business; and (c) The amount of a reserve allowed as a deduction in the previous year of assessment for the unexpired risks at the percentage for such risks adopted by the insurer in relation to his short term insurance operations as a whole Paragraph 5 "The losses, expenses and deductions in respect of short term insurance business of an insurer to which paragraph 4 relates shall be: (a) Premiums paid on reinsurance; and (b) Actual losses in Malawi less losses recoverable on reinsurance; and (c) Expenses of management in Malawi other than those of a capital nature; and (d) Commission in Malawi, that is to say, net commission after deduction of commission received on reinsurance; and (e) Expenditure, other than expenditure of capital nature, expenses referred to in subparagraph (c) or commission referred to in subparagraph (d), which is incurred in Malawi in the production of income; and (f) An allowance of such an amount as the Commissioner may approve in respect of expenses incurred outside Malawi in connection with the premiums and other amounts referred to in paragraph 4(a) and (b); and 17 (g) The amount of a reserve for unexpired risks at the percentage adopted for such risks by the insurer in relation to his insurance operations as a whole which is set aside by the insurer at the end of the year assessment. (Emphasis supplied). 55. The reading of the Schedule, particularly the paragraphs [ have highlighted, does not, 56. 57. 58. in this Court’s opinion, give the defendant any discretion either. If read in conjunction with section 63, the language is clearly mandatory. Thus income derived from an insurance business is to be taxed solely in accordance with the provisions of the Schedule. One cannot import the provisions of section 28 or 45 or any other provision or law into it. Both parties have, at some point, tried to persuade this court to consider other provisions. I cannot see any permissive language either in section 63 or the Schedule. As such it is my finding that the defendant is only allowed to implement the law as provided for in section 63 as read with the Schedule. The claimants have submitted that “tax laws” must not be interpreted narrowly to mean provisions of the Taxation Act only but to include all laws that may have an impact on the tax liability of a subject. They submitted that when section 12 (f) of the Constitution talks about the law it refers to the general body of the law and not sectoral rules. Thus it follows that Defendant ought to consider all laws that have an impact on the tax payer’s business when taxing their income. It is agreed that law it refers to the general body of the law and its collective effect on the functioning of society. However, there is a good reason why the law is sectored in its structure. Whereas you can find provisions from one sector of the law affecting the other, the primary provisions to be considered are the ones from the sector dealing with the subject matter at hand. This does not mean that one cannot look to other sources of the law. But that is only for purposes of interpretation or construction of these primary authorities. 18 59. 60. 61. 62. 63. This is where I find that the dispute really lies. The claimants submit that the Schedule specifically paragraphs 4 and 5 (c) and (g) allow for IBNR claims reserve as a “specific” or “technical reserve™ to be deducted from the income of the business for tax purposes. To support his submission Counsel has referred to a number of case authorities which, although I do not specifically mention them, I have read them and considered them in this judgment. Suffice to say that they are all foreign cases from common law jurisdictions but which are of no binding authority on this court. The claimants submit that the 2019 Directive comes in because the directive binds their members, requiring them to provide for the IBNR claims reserve or face penalties. This means that the IBNR claims reserve is a necessary expense for the running of the insurance and that it is a specific expense as there are clear methods of determining the amount. They say the IBNR claims reserve is not capitalisation. It is a specific expense required in insurance business. They argue that, being a technical reserve covering both expired and unexpired risks, the IBNR claims reserve is part of those technical reserves that should be tax deductible as prescribed under the Schedule because to the insurance business these are actual [expenses] and compulsory and therefore ought, at law, to be allowable as a deduction as has been the case over the years. So premised on the specific law in s. 63 of the Taxation Act as read with the Schedule and the 2019 Directive, IBNR Claims Reserve is in fact and in law an allowable deduction. In interpreting the provisions, the parties have implored this court to use the principle that tax laws are to be interpreted strictly. Nothing to be read in and nothing is to be presumed. Counsel for the claimants submits that the defendant's “determination that IBNR provisions are general in nature and taxable under the general provisions of the Taxation Act when the Act does not explicitly state so therefore has no legal basis at all” 1 will digress here to clarify this point. The letter containing the determination being challenged here does not at any point state that the IBNR claims reserve will be taxed 19 under the general tax law. In fact, all that the letter is saying is that IBNR claims reserve is not an allowable deduction in terms of the Schedule. This, in my understanding only means that the income placed in the IBNR Claims Reserve fund shall be added back to the income of the insurer before taxation so that it is taxed together in accordance with the provisions of the Schedule. I do not understand where the claimants are getting the impression that the defendant intends to tax the insurance businesses under the general tax laws. 64. Coming back to the issue of interpretation, the oft cited dictum of Rowlatt J in the case of Cape Brandy Syndicate vs Inland Revenue Commissioners [1921] 1 KB 64 must be recalled. In that case he explained the meaning of strict interpretation of tax laws. He said: It simply means that in a taxing Act 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 only look faitly at the language used. 65. The English Court of Appeal in WT Ramsay Lid vs Inland Revenue Commissioners [1946] AC 119 at 140, said: A subject is only to be taxed on clear words, not on intendment or the equity of an Act. Any taxing Act of parliament is to be construed in accordance with this principle. 66. The principle has been adopted and used numerous times in this Country. In my view though, the principle does not introduce any unique rule of interpretation. What the principle does is to reinforce the rule that words of a statute must be given their ordinary meaning while at the same time recognising that since tax laws impose obligations on the citizen they must not leave room for an interpretation which may lead to an imposition of more liability on the citizen than what has been expressly stated in the statute. It also means that where there is an ambiguity, the interpretation must favour the tax payer and not otherwise — see the persuasive South African authority of A (Pty) Ltd v The Commissioner for the South African Revenue Service ITC 12644 (2012). 67. I stated earlier in this judgment that taxation is a matter of law and not administrative policy. In reference to the interpretation principle it means that the tax authority has no discretion on what to tax or what not to tax. It has to strictly implement the law. Even where there are deficiencies in the law, the tax authority has to do only that which it is required to do without trying to cover the gaps left by the law. Finally, in as much asa tax payer benefits from this provision when it favours him/her, it aiso means the tax payer is bound strictly by the law and cannot ask for special treatment which is not warranted by the law. 68. The claimants have forcefully argued that comparable foreign case law support the approach that such reserves are allowable deductions from the income of the insurer. My reading of the cited decisions reveals that the courts were concemed with interpreting their own taxation statutes. As such, except on general principles of interpretation, for the court to rely on them as persuasive authority, the statutes that were being interpreted in those cases must have been similar to the statutes being interpreted in the instant case. 69. The cases that have been cited here are with reference to statutes framed differently from our statute. In RACV Insurance Pty Ltd v Commissioner of Taxes [1975) VRP 1 for example, the Court was concerned with an interpretation of Section 51(1) of the Australia’s Income Tax Assessment Act, 1936. The text is not reproduced in the Jjudgment. I looked it up. It read as follows: All losses and outgoings to the extent to which they are incurred in gaining or producing the assessable income, or are necessarily incurred in carrying on a business for the purpose of gaining or producing such income, shall be allowable deductions except to the extent to which they are losses or outgoings of capital, or of a capital, private or domestic nature 70. Now replaced by amendments this was a general taxation provision relating to all income derived from business. The Commissioner of Taxation and the Court were allowed to interpret it as widely. Indeed, at page 9 of the copy of the judgment printed 21 7 72. 73. 74. from the Australian Legal Information Institute website the court stated “the conclusions I have stated are, Ithink, reinforced by the consideration that under s51(1) a loss or outgoing is a deduction to the extent to which it is incurred in gaining or producing the assessable income.” Further, the facts reveal that the claimant had an idea and sometimes actual knowledge of the IBNR events and the calculations were based on such knowledge. That is unlike the present case where there is no requirement of such knowledge when calculating the reserve. - The rest of the cited authorities equally deal with taxation laws of the particular Jjurisdictions where they were decided. The claimants have not shown that the provisions of the Taxation laws which were being interpreted are in any way similar to our section 63 as read with the Schedule. They are therefore not of much use for our purposes. I reiterate that Section 63 clearly restricts taxation of insurance businesses to be done in accordance with provisions of the Schedule. I have read the Schedule and the 2019 Directive side by side. Paragraph 4 of the Schedule restricts deductions to be done in accordance with Paragraph 5. The Commissioner General therefore has no mandate to go outside these provisions when the law clearly restricts him to them. Paragraph 6 of the 2019 Directive expressly requires the establishment of a number of reserves. Two of them caught my attention: the IBNR claims reserve and the unexpired risk reserve. I must mention that in respect of the unexpired risk reserve the directive gives alternative reserves and the insurer is supposed to maintain the one that is higher. But that is not the concern of this judgment. The definition section of the 2019 Directive also caught my attention: there are definitions not only of the IBNR and unexpired risk reserve and its alternatives, there is also a definition of “technical reserves”. Technical reserves have been defined as the “total reserves determined by an insurer with this directive and may be gross reserves or net reserves”., 22 75. 76. 77. 78. The Schedule expressly allows the deduction of “the amount of a reserve for unexpired risks at the percentage adopted for such risks by the insurer in relation to his insurance operations as a whole which is set aside by the insurer at the end of the year assessment”. In other words, it does allow for the deduction of the unexpired risk reserves. The same does not mention the IBNR claims reserve. When [ marry this with the fact that the 2019 Directive mentions both and the fact that definition of technical reserves means a sum total of all the reserves, I find that the unexpired risk reserve is a different reserve from the IBNR reserve. Similarly, while these two may be partofa technical reserve is wider reserve covering all insurance reserves and it is not the same as these specific reserves. In my view therefore, if the law intended to include both the unexpired risk reserve and the IBNR claims reserve in deductible expenses it should have expressly mentioned the IBNR claims reserve. If it intended to include all reserves under the technical reserve umbrella, it should have Jjust mentioned “technical reserves”. The fact that the Schedule mentions neither IBNR claims reserves nor technical reserves points more to their exclusion than their inclusion. But the claimant has also argued that being a regulatory requirement in the insurance industry the reserves must be considered as an expense since the insurers have no choice but to maintain the reserve. For us to determine whether the reserves are an expense we have to look at the ordinary meaning of expense. The Black’s Law Dictionary (Fifih Edition, 1979) defines an expense as that which is expended, laid out or consumed; accrued expense which has been incurred in a given period but not yet paid. Collins Dictionary (Tenth Edition, 2009) defines it as particular payment of money, expenditure. A sum paid out. While the Oxford Advanced Learners Dictionary (7" Edition, International Students Edition) defines it as money you spend on something. From these definitions an expense involves paying out of money. A reserve cannot be included in this definition of expense. Reserves are not pay outs. They ate at best mere contingencies or liabilities. [ am thus unable to interpret IBNR as an expense. 23 79. 80. 81. 82. The stakeholders of the meeting of 26" September, 2024 were right. There is a gap in the law. That gap could not be filled by the Defendant in his administrative capacity. This court cannot fill that gap on judicial review of the decision as that would be tantamount to faulting the public officer’s decision which, in fact, he was entitled to make given the law as it stands. The gap can only be filled by the lawmaker themselves. In view of the foregoing I find the interpretation of the Schedule by the defendant insofar as it is to the effect the IBNR claims reserve is not an allowable deduction is reasonable in the circumstances. Indeed, as pointed out the IBNR claims reserve is not even recognised in the Schedule. If the law giver intended to include the reserves, they could have done so. The Defendant has no power to include that which is not expressly included or exclude that which is expressly included. In the circumstances the claim fails and is dismissed with costs. Delivered in Open Court this 16% Day of September, 2026 at 9:30 a.m. Justice Chimbizgani Chase Matapa Kacheche 24