Insurers, finance department form tax review group

The Department of Finance (DOF) will form a technical working group to review the tax environment believed to be among the major reasons stifling the growth of the country’s insurance industry.

Finance Undersecretary Gracia M. Pulido-Tan said that the group would be composed of representatives from the finance department, life and non-life insurance sector, and the Bureau of Internal Revenue (BIR).

Pulido-Tan was reacting to cries from the non-life insurance industry seeking a reduction of the tax burden, which accounts for over 26 percent of premiums paid by the insuring public.

"Part of our review is to determine which of the taxes could be addressed through legislation and which could be acted upon immediately," the finance undersecretary said during a forum sponsored by the Insurance and Surety Association of the Philippines (ISAP) recently.

The non-life sector reportedly achieved positive growth in 2003 after nearly two consecutive years of contraction.

It paid taxes amounting to approximately P5.6 billion in 2002 accounting for more than half of what the entire insurance industry paid in that period. Official industry reports indicate that the country’s insurance industry shelled out more than P8.9 billion in taxes.

Unconfirmed reports pointed to a lower collection figure of P5.4 billion for the non-life sector last year. Insurance Commission (IC) officials said that one reason for the lower tax collection was that several players have closed down.

The basic tax forms weighing heavily on the industry are the documentary and science tax (DST), value added tax (VAT), and income tax. Not to mention municipal taxes and fees as well as the controversial fire tax.

ISAP president Victoria B. Roman also pointed to cases of double taxation in the case of reinsurance, commissions, brokers and sales agencies.

"Layers of taxes make insurance expensive for the public and costly for insurers," Roman said. "In fact, local manufacturers, exporters and importers prefer to get their marine insurance overseas as it cheaper."

Roman said it was bad enough that locally-based insurers have to compete with foreign-based players, deal with poor economic conditions and stiff regulatory environment. "But the tax burden only makes it harder to operate and extend protection to the insuring public."

The non-life sector earned only P24 billion in premium income in 2002 versus P36 billion acquired by the life sector. In terms of investments, the non-life sector only accounted for P27 billion of the total P173 billion made by the insurance industry.

Net income admitted by the non-life sector barely reached P1.5 billion against the life sectors more than P3 billion. Strangely, there are 32 life insurance firms versus a little over 90 in the non-life sector. – Ted Torres