Insurance products: SECP asks FBR to remove ‘multiple layers’ of taxation

ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has recommended Federal Board of Revenue (FBR) to remove multiple layers of taxation on insurance products which increases the overall cost of micro insurance in Pakistan.

The SECP Tuesday issued a report titled “Unlocking the Potential of Micro and Inclusive Insurance in Pakistan,” which provides an overview of the current landscape and vast untapped potential market for inclusive insurance.

The SECP has recommended that rationalisation of taxation on insurance specifically on sale of inclusive insurance products would lower the tax burden on insurance companies as well as on policyholders and would pave path for a more conducive environment for the insurance industry.

Subsequently, the growth of the industry will result in more tax revenue for the tax authorities and increase financial inclusion.

“Insurance in Pakistan faces a significant challenge in its uptake due to lack of awareness and religious consideration, with 98 percent population being Muslim. A notable portion of religious individuals in the country refrains from purchasing conventional insurance products due to beliefs associated,” the report stated.

The report stated that multiple layers of taxation not only impact the affordability of insurance but also exacerbate existing inequalities by placing a disproportionate burden on those who can least afford it. Specifically, these taxes on insurance products increase the overall cost of insurance, rendering it even costlier for individuals, particularly those from lower-income segments of society. Consequently, addressing the issue of multiple taxation layers on insurance products is imperative for promoting financial inclusion and ensuring that insurance remains accessible to all members of society.

This report explores inclusive insurance in Pakistan, highlighting its untapped market potential, comparing it to other jurisdictions, analysing gaps, and proposing a future course of action.

The data collected indicates a concerning status of inclusive insurance market in Pakistan. A total of 12.56 million insurance policies were sold through microfinance banks/institutions. Out of these, 89 percent are credit life insurance, indicating a primary focus on covering the underlying credit risk. Moreover, of the 20 insurers offering inclusive insurance, only four are actively involved in digital distribution of small ticket products.

Commissioner Insurance, Aamir Khan in his message for report said that “inclusive insurance is of paramount importance for growth of the overall insurance penetration as it will assist and encourage insurers and other stakeholders in developing products and services that foster greater financial inclusivity.”

Acknowledging, the urgency of this matter, collaborative efforts are required to bridge regulatory gaps, streamline processes, enhance awareness and improve product accessibility through focusing on digital distribution. By partnering with Mobile Network Operators, micro-insurance providers can leverage their extensive network and digital infrastructure. The way forward to make inclusive insurance accessible to the target market is through amendments in Micro-insurance Rules 2014 and leveraging technology to the fullest.

Collectively SECP, and insurance industry, along with other relevant authorities, have prioritized the development and implementation of comprehensive policies to facilitate inclusive insurance growth. The report suggests forming a synergy group and involving insurance companies, InsureTech, and the government to ensure inclusive insurance accessibility for underserved populations.

Copyright Business Recorder, 2024