When an insurer pays out a total loss claim and takes possession of the wrecked vehicle, is its subsequent disposal a taxable sale or merely the final step in delivering an exempt insurance service?

This deceptively simple question lay at the heart of Commissioner of Domestic Taxes v ICEA Lion General Insurance Company Limited [2025] KEHC 14865 (KLR), a case that invited the High Court to interrogate the boundaries of VAT liability in the insurance sector. As the Kenya Revenue Authority sought to isolate salvage disposal as a standalone supply, the Court was asked to look beyond the sale and into the legal and economic substance of indemnity, subrogation, and the composite nature of regulated financial services.

Below, we offer an analysis of the Court’s reasoning on the above question and its broader implications.