With the removal of tax exemption from life and health insurance business, the growth rate in gross premium of life insurance has witnessed a downward trend as people have now stepped backward from buying life insurance policies. Sources told fbr times that the tax department would suppress the growth of the life Insurance business, which has the lowest penetration in the region ie 0.4 per cent of Gross Domestic Product (GDP). Moreover, Sindh Board of Revenue has also removed tax exemption from life and health insurance and, as such, the gross premium rate which is now 30pc, is likely to fall down soon, the sources opined. According to sources, life and health insurance business was also facing tax issues as the life insurance sector, being specialised industry, is taxed under special tax provision whereas the general provisions of law are not applicable to life insurance business. Section 99 of the Income Tax Ordinance, 2001 directs the taxation of this sector under Fourth Schedule to the Income Tax Ordinance 2001 that has been legislated for this purpose. The IT department has misinterpreted legal statutes contained in Fourth Schedule in their favour and has disallowed the policy-holders reserves as deduction from income, whereas such reserves have allowed as deduction under IT Law to pay off the final claims/liabilities of policy-holders on the maturity of policy or in the event of death of the policy-holders. These reserves have been added back to the taxable income and charged to tax at corporate tax rate of 35pc, the sources claimed, saying that the IT department has now also considered the maturity proceeds as profit on debt and applied the provisions of law legislated for applying withholding tax on debt instruments. Besides, for the amount in excess of the premium paid, life insurance contracts did not fall under the definition of debt instrument and hence Section 151(1)(d) was not applicable to maturity proceeds. In most of the South Asian countries, including India and Bangladesh, there is no taxation on the surrender/maturity proceeds of the life insurance policies, the sources said, adding that the insurance penetration and density remained very modest as compared to other jurisdiction, while the insurance sectors remained underdeveloped in relation to its potential. Moreover, seven life insurance members, including State Life, posted growth of almost 15pc and reached to Rs 101billion worth of premium income in 2013. Among the seven life insurers, the Insurance Association of Pakistan represented almost 100pc of life premium generated in Pakistan. On the other-hand, 28 non-life member companies grew by nine per cent and achieved premium income of Rs 49bn on representing almost 86pc market share. Claiming that the PRCL, the only re-insurer, grew by 10pc, he said: Tax incentives to health and personalised insurance should be allowed to help the growth of insurance sector and to minimise the cost of protecting the common people and the country. If health Insurance is made mandatory by the government it would not only increase insurance penetration, but would also be a step forward towards providing basic health facilities to the low-income group people, he added.
Posted on: Fri, 11 Jul 2014 17:58:54 +0000
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