The Federal Board of Revenue has received a budget proposal to remove a major anomaly in the Federal Excise Act, 2005 pertaining to federal excise duty on reinsurance. Sources told Business Recorder on Thursday that the present law has created double taxation within the insurance sector, which needs to be removed through amendment in Finance Bill 2008-2009.
According to sources, the reinsurance arrangement is a capacity support to an insurance company (risk sharing thereby ensuring protection to the policyholders), whose services to its policyholder, against receipt of premium, have already been subject to the federal excise duty. Hence, any federal excise duty on subsequent reinsurance arrangement will be double taxation, which needs to be rectified.
Presently, existing provision of First Schedule of Federal Excise Act, 2005 has specified services provided or rendered in respect of insurance to a policyholder by an insurer, including a re-insurer. It covered goods insurance; fire insurance; theft insurance; marine insurance and other kinds of insurance.
Tax experts have proposed that an amendment is required in the Federal Excise Act to remove the words including a re-insurer from the services provided or rendered in respect of insurance to a policy holder by an insurer.
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