DOF may freeze withholding tax on insurance premiums

The Department of Finance (DOF) is considering the possibility of suspending the two percent creditable withholding tax on insurance policy premium payments pending a comprehensive review of all applicable taxes on insurance.

The DOF disclosed that it has created a technical working group to study the lobby of the insurance industry and other tax-related issues in the insurance industry.

Finance Undersecretary Ma. Gracia Tan said the working group would study the request of non-life insurance companies to suspend the creditable withholding tax being withheld by the top 10,000 corporations on their insurance policy premium payments.

Tan revealed that the industry also wanted the suspension of the 10 percent creditable withholding tax being withheld by non-life insurance companies on gross commissions to brokers.

According to Tan, these requests as well as all other applicable taxes on insurance policies would be studied by the group to determine if they are necessary or relevant.

Tan said insurance companies are arguing that the creditable withholding tax is difficult to implement because most of the top 10,000 corporations in the country deal with insurance brokers and not directly with insurance companies.

Insurance brokers remit insurance premium net of the brokers commission, making it difficult to track the actual payment of the withholding tax.

Tan said the industry also wanted the government to ease the implementation of the documentary stamp tax. She said non-life insurance companies are proposing that the purchase and printing of the documentary stamps on insurance policies be made within 90 days from the issuance of the policy.

Under existing rules, Tan explained that the purchase and printing of documentary stamps should be done on or before the fifth day after the end of the month to cover policies issued during the month just ended.

"Non-life insurance companies are requesting for a 90-day period to coincide with the 90-day grace period that non-life insurance companies usually give to their brokers to settle the amounts due on the insurance policies issued," Tan explained.

Tan noted that the DOF and the Bureau of Internal Revenue (BIR) have not taken a position on these proposals pending the completion of the review to be conducted by the working group.

The working group would be composed of representatives from the DOF, the BIR and the Insurance Commission.

Tan said the group has already been expanded to include representatives from the Bureau of Customs since the group would also review issues involving insurance companies that issue sureties and bonds.