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

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.