The Sindh Revenue Board (SRB) has removed the exemption of sales tax on life and health insurance business and only individual life premium up to Rs 0.5 million per annum has been exempted. Insurance Association of Pakistan (IAP) has sought the attention of the SRB through a letter recently issued from Life Committee, IAP to Syed Mushtaq Kazimi, Advisor tax Policy, SBR for revising the proposals in the Sindh Budget 2014-2015 about the removal of exemption of sales tax on life and health insurance business, which would have a serious impact on life insurance penetration and the insurance business specially group life, high net worth customers and single premium policies. According to the letter, in Pakistan, the insurance sector has always been neglected area. There has been very little emphasis on the importance of life insurance from the government perspective. However, for the last few years the government has been taking solid steps in order to boost the growth of this neglected area. A tax rebate on life insurance was introduced in 2011 and further improved in 2012. This tax credit on life insurance premium is available up to maximum of Rs 1 million in a tax year. This mean levying sales tax on the life insurance premium would dilute the impact created in the form of tax credit relief. Accepting the nature of life insurance as medium of savings, it seems wrong in principle to subject it to General Sales tax. Savings need to be encouraged not discouraged, if Pakistan is to attain the goal of self-reliance. It is pertinent to mention that Life Insurance premium remains exempted at the federal level and also exempted by the SRB through notification SRO Leg (1)/2011 dated 1st July, 2011. Furthermore, it is important to note that small part of life insurance premium is used to provide protection against the risk of death or disability and the bulk constitute savings of the policyholders. Levying the GST on life insurance premium would therefore be similar to levying sales tax on new bank deposit or new investment in mutual funds which is obviously not right. The net result would be certain no further investment in life insurance as an individual would want to make savings where a large proportion is immediately taken away by the state. The official of the IAP said, Several meetings have been conducted after the issuance of notification but the government is not accepting the proposals of removal of exemption. Due to this step taken by the government the life insurance industry, which was growing at the rate of 25 to 35 per cent, will likely to collapse in near future. Moreover, it is informed that life insurance industry is contributing around Rs 3 to 4 billion per annum in the State Revenue as withholding agent and corporate tax payer.
Posted on: Fri, 04 Jul 2014 01:44:45 +0000
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