The Insurance Commission (IC) reported yesterday that the Capital Market Development Council (CMDC) has concluded its discussions on restructuring the tax framework for insurance products and a draft bill was already being prepared.
According to IC ccommissioner Evangeline Escobillo, the industry has been lobbying for a review and revision of the tax structure on insurance products for years, asking government to align them with similar instruments.
"It will take legislative action to address the disparity between insurance products and other investment vehicles but we have reached an initial consensus and we’re now in the stage of drafting a proposal," Escobillo said.
Although the timing of the actual adjustment in taxation would depend largely on how soon the government would be able to balance its budget, Escobillo said the objective of the proposed measure was to level the playing field so that insurance products would no longer be taxed more than similar investment vehicles.
"For example, principal deposits held for five years or longer are not taxed, only their interest earnings," Escobillo explained. "In contrast, both the premium and the endowment of insurance policies are taxed."
Under existing laws, Escobillo said life insurance premiums are covered by a five-percent tax and a documentary stamp tax equivalent to 0.25 percent of the premium.
Non-life insurance products, on the other hand, are covered by the 12-percent value-added tax and the documentary stamp tax equivalent to 12.5 percent of the premium.
The endowment of both classes of insurance are covered by the capital gains tax, she said.
In other countries, Escobillo said the practice was to segregate the pure insurance from the endowment and only the insurance premium itself is covered by the tax.
"It must be understood that the government must balance its budget," Escobillo pointed out. "The timing of this initiative must consider that concern."
Escobillo said the plan was to gradually reduce the tax on insurance products until they are finally aligned with other similar products to minimize the revenue impact on the national budget.