IC, non-life insurers seek tax reforms

MANILA, Philippines - The Insurance Commission (IC) is asking the Department of Finance (DOF) to help introduce tax reforms that will provide a boost to the country’s non-life insurance industry.

Specifically, the IC wants to address the various forms of taxes and fees that make protection products of the non-life insurance industry unattractive.

Non-life products include damage to property due to fire, damage to automobile, damage or loss to products, and the like.

Taxes and other fees amount to over 26 percent of premiums paid by the public for protection. Or simply put, for every P100 in premiums, only P74 is for the insurance protection.

 â€œThat is making the protection products of the non-life insurance sector unattractive, uncompetitive,” IC commissioner Emmanuel M. Dooc, said.

In fact, Dooc confided that a number of reputable non-life insurance companies have withdrawn or are intending to withdraw from the Philippine market due to the tax and fee burdens.

“That is due mainly to the high cost of running the business resulting in margins become very small,” he added.

Non-life policies are burdened with a basket of taxes, including a 12-percent value-added tax (VAT), 12.5 percent documentary stamp tax (DST), the two-percent fire service tax, and between 0.15-0.75 percent in various forms of local government taxes and fees, not to mention income taxes.

In comparison, Singapore charges only a seven-percent VAT for every policy, while Thailand charges only 3.9 percent for personal accident (PA) policies, and 7.4 percent for all other types. Indonesia charges 0.4 percent.

Some Asian nations slap a uniform one-percent DST or in other cases, a flat rate such as S$1 DST in Singapore.

In 2010, the IC and the life insurance industry were granted a relief when government agreed to reduce by half the five-percent premium tax.

That resulted in a more vibrant life sector. It is estimated that the total premium income from the life insurers will reach a record P113- to P115-billion in 2012.

The non-life insurance sector reported premiums of P22 billion in 2011 from P20 billion in 2010 despite the burdened tax environment.

Taxes and investments made by the insurance industry reportedly amounted P600 billion in 2011, with P400 billion invested in government securities (GS).

 â€œThat is a significant amount to help the national government improve the economy,” Dooc said.

The life insurance industry saw the five-percent premium tax reduced, based on the argument of supply side economics, or the life insurers were able to sell more insurance products due to the lower premiums due to the reduction in the premium tax.

Dooc said that the same economic environment could be applied with the non-life insurance sector.

Meanwhile, the proposed amendments to the Insurance Code of the Philippines is expected to be signed into law this week, after hurdling the bicameral congressional committee Tuesday.

Critical features of the proposed amendments include empowering further the IC, capitalization issues, and giving more flexibility to the industry in terms of investments.