ISLAMABAD:
The federal government could convey drastic modifications within the revenue tax construction of the insurance coverage sector, whereas levying a brand new tax on insurance coverage premium that would adversely have an effect on the expansion of an trade nonetheless in its infancy.
“Finance Minister Ishaq Dar is claimed to have authorized a price range proposal to cost a single revenue tax fee of 31% from the brand new monetary 12 months 2016-17, on all sources of revenue of insurance coverage corporations,” stated sources within the Federal Board of Income (FBR).
Presently, the insurance coverage revenue is categorised in varied segments and its tax charges vary from 10% to 32%. The insurance coverage sector shouldn’t be the one enterprise that has been taxed underneath varied brackets; different company sectors additionally get separate revenue tax remedy.
“Dar has additionally cleared a price range proposal to levy a withholding tax on insurance coverage premiums,” added the sources. “A fee of 1% withholding tax could also be imposed on life insurance coverage whereas for normal insurance coverage it might be as excessive as 4%.”
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In keeping with one other proposal, the federal government can also be prone to improve tax charges on well being and life insurance coverage fee brokers who’re non-filers of revenue tax returns, whereas the minimal tax on company service suppliers, who submit their accounts for audit, might also go up from 2% to 2.5%.
The dimensions of the insurance coverage enterprise in Pakistan could be very small, constituting about 0.8% of Gross Home Product (GDP) together with the general public sector insurance coverage corporations. This ratio is 3.8% in India, 3% in China and eight.6% in Germany.
Presently, there are six non-public insurance coverage corporations working in life insurance coverage enterprise excluding state-owned State Life Insurance coverage Firm, in line with the Insurance coverage Affiliation of Pakistan (IAP).
The non-public life insurance coverage corporations’ gross premium stood at Rs74.2 billion they usually earned Rs3.2 billion revenue after tax within the 12 months ended on December 31, 2015. The 30 normal insurance coverage corporations had gross premium of Rs61.3 billion and their after-tax revenue stood at Rs13.6 billion, in line with the IAP.
Basket tax fee
The federal government could improve the revenue tax charges on dividend revenue and capital good points to convey it at par with the usual company tax fee of 31% for the insurance coverage sector, stated the sources.
Presently, the revenue of insurance coverage enterprise, dividend revenue and capital good points is taxed within the vary of 10% to 32%. The usual company fee of 32% might be lowered by 1% to 31% subsequent 12 months underneath a five-year company tax fee discount plan.
Nevertheless, to offset the impacts of this discount, the federal government has been regularly growing the charges of different supply like dividend revenue.
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The FBR is of the view that insurance coverage corporations are likely to put money into shares and mutual funds to avail tax advantages and the aim of a change in tax construction is to discourage this tendency.
The non-public insurance coverage enterprise hardly exists within the nation and any upward revision in tax charges could have devastating results on the sector and the insurance coverage price will go up, stated Coverage Analysis Institute of Market Economic system (PRIME) Government Director Ali Salman.
“The heavy presence of public sector within the insurance coverage enterprise can also be detrimental to the sector’s development. Furthermore, the international trade that the nation earns by exporting the re-insurance companies may additionally get affected as a consequence of these modifications,” he added.
WHT on premium
The federal government might also slap 1% withholding tax on life insurance coverage premiums and claims and 4% on normal insurance coverage. The insurance coverage sector is to date exempted from fee of withholding tax.
The fee paid to life and medical insurance brokers is taxed on the fee of 12% for filers and 15% for non-filers. The federal government could scale back the speed for filers to eight% however for non-filers the speed could also be proposed to extend to 16%.
Revealed in The Categorical Tribune, Could 29th, 2016.
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