09/07/2014
"Taxes, taxes and more taxes" is what the taxation authorities want. Slowly and gradually all the sectors are being brought under the taxation ambit. Now its time for the insurance business! The exemption of sales tax on life and health insurance business has been withdrawn by Sindh Revenue Board (SRB) with the exception of individual life premium up to Rs0.5 million per annum.
"Coverage of under Rs0.5 million represents not more than 10 percent of the insurance business. That said, the provincial government effectively wants to tax 90 percent of entire insurance business," said Javed Akhtar, CEO of Jubilee Life in a conversation with BR Research.
The move will badly hit the corporate business as it is largely based in Karachi. It represents Rs10 billion of the total industry size of Rs100 billion (individual plus life insurance) and is estimated to face an additional tax burden of Rs1.5 billion, according to Akhtar. Considering that, employers offering insurance benefits to its employees might consider cutting down those benefits to counter the additional tax burden.
"Even in India, sales tax is charged at a minimal rate of 1 percent. And to my knowledge, life insurance is exempted from sales tax elsewhere in the world. Here, we have been able to create a unique example in the world", he said with sarcasm.
Promoting life and health insurance business is the basic responsibility of the government and rather than fulfilling its responsibility, the provincial government is in fact taxing the nation. Industry sources have labeled it is an irrational move since taxing premiums (at a rate of 15 to 16 percent), which is effectively the value one gets at the time of maturity, is similar to taxing saving products including bank deposits. Not to disregard, life insurance is considered as one of the most important tools to boost the savings rate in a country.
And the chronicle doesn end here! By taxing micro-insurance in the form of group insurance, the poor community is bound to bear the additional strain of taxes. Currently, Insurance Association of Pakistan is still in negotiations with SRB, but there are little hopes of winning the negotiation, according to industry sources. Lets see in whose favour the verdict goes!
