The American Business Council (ABC) has proposed to the government to allow international insurers, which meet minimum capital requirements locally, to open branches in Pakistan, aimed at attracting Foreign Direct Investment (FDI) and contributing towards conservation of foreign exchange in the country. Currently, a draft Insurance Bill, issued by the SECP on December 28, 2016 is being reviewed. One of the objectives in bringing about reforms in insurance law is to develop the insurance sector.
The ABC has sent several other suggestions to the Ministry of Commerce and Textile to incorporate them in forthcoming new policies. Commenting on sales tax on reinsurance premium, the ABC said that Sindh Revenue Board (SRB) has imposed a 13 per cent tax on reinsurance service providers which has created a concern in the market as Sindh Sales Tax on Services (SST) is charged on the insurance premium and to charge SST again on the facultative reinsurance transaction acts as double taxation on virtually the same insurance risk and also adds to unnecessary administrative burden.
The ABC is of the view that reinsurance is not an independent activity that should be subject to tax. Rather it is only generated by an insurance transaction which entails sharing the risk of the original insurer and for the same perils as covered under the direct policy of insurance.
The ABC has also proposed that there should be separate tender criteria for Pakistan registered insurance companies in accordance with their local capacity. It further stated that there is a need for holistic approach to regulations by State Bank of Pakistan (SBP) and Securities & Exchange Commission of Pakistan (SECP) with respect to reinsurance from regional countries. There has been interaction between SECP and SBP but an outcome is yet awaited.
According to the Council, projects financed by lenders (both international and local) contain contract clauses that require insurance claim proceeds to be deposited into offshore trustee accounts in dollars. However, at the time of settling claim involving such projects, processing at the SBP is very slow with unnecessary documentation being sought from insurers and in most cases a denial of permission ids made for claim settlements outside the country.
The Council is also of the view that SBP needs to comprehensively review incorporation of such clauses in lenders' agreement (both local and international lenders) and to take a holistic approach in terms of other applicable laws affecting the transactions.
Commenting on issues related to ceramic, the ABC said that the increase in gas tariff has made local industry non-competitive due to which it is unable to sell products at reasonable price, and suggested reduction in gas prices. It also raised the issue of smuggling of tiles from Iran and abolishment of the turnover tax.
Raising issues related to tobacco, the ABC has proposed that current excise regime be maintained and multiple and steep increase in excise duties and taxes be avoided. It suggested continued enforcement through the Inland Revenue Enforcement Network (IREN) in order to curb revenue loss, and commencing immediate action for tax evasion against all non-compliant local cigarette manufactures and smugglers, including seizure of frequently obtained penalties and closing all non-compliant cigarette manufacturing facilities.
The ABC has proposed introduction of low-cost tax stamps which will allow LEAs, retailers and smokers to identify an illicit cigarette pack.
For improvement in tobacco exports, the ABC has proposed that a consistent mechanism to be formed through consultation with all stakeholders to determine the cost of production in line with ground realities. It further recommended that announcement of MIP prior to the manufacturer's submission of quota. The levy should be removed on export of tobacco, it suggested.
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