Insurance services: SECP advises Sindh govt to revoke levy of stamp duty from July 1

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has proposed to the Sindh government to revoke the levy of stamp duty on the insurance services from July 1, 2022.

In this regard, the SECP has submitted budget proposals (2022-23) to the Sindh government for supporting the insurance industry and amendments in the Stamp Act.

The SECP has informed the Sindh government that in order to increase financial inclusion specifically the inclusion of insurance services it is proposed that the levy of stamp duty on insurance services be revoked.

The proposal bears the concurrence of the subcommittee of NFIS Technical Committee on Digital Financial Services and Payment Systems and the SEC Policy Board which affirmed to its significance in respect of the removal of administrative hurdles from insurance processes in the wake of digitization. The NFIS Technical Committee on Insurance was formed in pursuance of the National Financial Inclusion Strategy (NFIS) launched by the Government of Pakistan (GoP) in 2015.

All the provisions related to stamp duty on insurance services ought to be removed from the Stamp Act, 1899 as adopted by Sindh. Draft amendments to the Stamp Act, 1899 of the province of Sindh forms part of Annex-III, the SECP added.

The SECP’s budget proposal revealed that the personal lines policies, such as personal accident insurance, travel insurance and home property/household insurance provide peace of mind to individuals against risks of accidental death/accidental injuries, contingencies arising from travel and risk of theft or damage to household items or home property. Non-life insurers in Pakistan have, in general, resorted to cater for the needs of the corporate sector and have by-large not focused on personal lines of non-life insurance business. This can be considered as one of the reasons to the fact that the penetration of non-life insurance is 0.3%, whereas penetration of the life insurance sector is almost double i.e. 0.54 percent.

The SECP proposed that incentivizing personal lines of non-life insurances through exemption from provincial sales tax would not only encourage non-life insurers to venture more into personal lines of business and especially into sale of low-ticket insurance products for masses but would also create a conducive environment for individuals to purchase personal lines of non-life insurance products. This would reduce the cost of premium for such products and may result in increased business prospects for insurers whilst providing products to the masses at lower premium.

It is proposed that personal lines of non-life insurance business i.e. personal accident insurance, travel insurance and home property/household insurance be exempted from the application of provincial sales tax. To give effect to the proposal, amendments to the Sindh sales tax law is being suggested as personal accident insurance, travel insurance and home property/household insurance be specifically excluded in Rule 31 of the Sindh Sales Tax on Services Rules, 2011, the SECP added.

The SECP has also proposed that the exemption to Modaraba and Musharika financing be extended to Ijarah financing Issue/Rationale Ijarah financing is a legitimate and well-recognized form of Islamic Financing. Other forms of Islamic financing i.e. modaraba and musharika financing are mentioned in the Sindh Sales Tax (SST), however, Ijarah financing has been missed out. In absence of any mention of Ijarah financing in the SST, revenue officials are insisting on treating transactions under Ijarah Finance as “Commodity and Equipment Leasing”.

It is therefore proposed that Ijarah financing be added as a recognized Islamic mode of finance and the exemption afforded to Modaraba and musharika financing should also be extended to Ijarah financing.

Sindh Revenue Board has misinterpreted and misimplemented the Provision of SST on Services Act2011, Second Schedule which clearly calls for 13% Sindh Sales Tax (SST) on Services whereas Ijarah Muntahia Bittamleek (IMB) is purely a shariah compliant financing activity.

The sales tax exemption has been proposed on the services provided or rendered by the banking companies, insurance companies, modarabas and ijarah financing, musharikas, leasing companies, foreign exchange dealers, non-banking financial institutions and other persons dealing in any such services, the SECP added.

Copyright Business Recorder, 2022