ISLAMABAD: The Securities and Exchange Commission of Pakistan (SECP) has strongly recommended the Punjab government to restore historically available exemption from sales tax on life insurance, health insurance and reinsurance services from July 1, 2022.
For the first time, the SECP has drafted budget proposals (2022-23) for the provincial governments to facilitate different sectors and industries at the provincial level. Provincial governments would implement the viable budget proposals of the SECP from next fiscal year, sources said.
In this regard, the SECP has communicated a set of budget proposals (2022-23) to the Punjab government for supporting the insurance industry.
The SECP stated that Punjab has imposed tax at the rate of 16 percent on life insurance, group health insurance and reinsurance; however, has levied zero percent rate of tax for individual health insurance.
The SECP is of the view that imposition of sales tax on life insurance, health insurance and reinsurance business should be abolished for increasing insurance penetration and financial inclusion in the country.
SECP urged to take notice of insurance cos’ questionable approach to death claims
To give effect to the proposal, the provincial Sales Tax on Services Act of Punjab would require amendments to restore the historically available exemption before transfer of subject of sales taxes to the provinces and imposition of sales tax by province of Sindh in 2013 and 2014 followed by other provinces to life insurance, health insurance and reinsurance services from the scope of provincial sales tax, SECP recommended.
According to the SECP budget proposal for 2022-23, Pakistan has one of the lowest insurance penetration in the region and therefore, SECP’s efforts are focused to promote insurance industry in particular, low-ticket insurance products and personal lines of non-life insurance business to serve the poor and most vulnerable segment of society. SECP believes that micro-insurance products can play an instrumental role in development of the insurance market in Pakistan.
Accordingly, the proposals primarily relating to provincial taxation are therefore prepared to level the tax field for insurance industry and supporting economy by providing risk mitigation solutions to the corporate sector and the masses at large.
The SECP has proposed restoration of the sales tax exemption on life insurance, health insurance and reinsurance services.
Presently, levy of sales tax on reinsurance services by the provincial revenue authorities has added significant tax burden on the insurance sector. Whilst certain insurance services such as goods insurance, fire insurance, theft insurance, marine insurance, etc., have remained subject to application of sales tax, life insurance, health insurance and reinsurance services, have historically remained exempt from the application of sales tax.
The SECP informed that the imposition of sales tax on life insurance, health insurance and reinsurance services by provincial revenue authorities would severally hamper the insurance penetration in Pakistan, which is already on the lower side, for different reasons.
The life insurance policies serve as a protection and savings tool for the policyholders, resulting in the fact that the policyholders expect investment return on their policies over a period of time. Imposition of sales tax as high as 16% (as levied by Punjab) would result in negative returns to the policyholders; hence, discouraging general public to purchase life insurance policies.
Additionally, taxing the gross premium of life insurance policies would result in taxing the hard earned after tax savings of the policyholders. Importantly, the Federal Board of Revenue (FBR) incentivizes individuals to purchase life insurance policies through entitlement of tax credit on paying of life insurance premium, levy of sales tax is contrary to measures taken by the FBR for promoting life insurance business, SECP maintained.
Copyright Business Recorder, 2022