Insurance firms buck additional taxes

Insurance companies have expressed alarm over a proposed order of the Bureau of Internal Revenue (BIR) seeking to impose additional taxes on industry players.

In a letter to Internal Revenue commissioner Lilian Hefti, the Philippine Insurers and Reinsurers Association (PIRA) claimed that the proposed memorandum order would result in double taxation on certain insurance products.

Honorio Ramajo, PIRA chairman, said the BIR’s proposal, if implemented, may result in additional burden on the part of consumers.

 “At the end of the day, the loser here will be the insuring public because they will end up shouldering the additional taxes,” he said.

The BIR issued early this month its newest circular that covers minimum corporate income tax, business tax and documentary stamp taxes.

Ramajo said the tax bureau had initially sought the industry’s opinion but did not consider any of the points the industry had raised.

PIRA is the umbrella organization of all non-life insurance companies in the country.

Ramajo noted that the proposed BIR circular’s biggest flaw was its imposition of a P15-documentary stamp tax on certain insurance products such as the compulsory third party liability (CTPL) insurance for motor vehicles.

“This is a case of double taxation since under the Tax Code, the CTPL is already covered by DST. We don’t see any reason why another DST should be levied on it,” he said.

Ramajo stressed that the new DST would only make insurance more expensive to common Filipinos who are in need of more insurance protection.

Other insurance products affected by the new DST are group personal accident insurance as well as marine cargo insurance.

PIRA is also questioning the BIR’s new policy that limits the scope of the so-called “cost of service” which covers the things to be deducted from an insurance company’s income before taxes are computed.

The new BIR circular limits the cost of service to only claims, losses, maturities and benefits and excludes salaries, employee benefits, cost of facilities and supplies and other expenses incurred in running the business which are accepted under the tax code.

“The particular provision clearly violates Section 27E of the Tax Code,” Ramajo said. As a lawyer, he stressed that “as a general rule, provisions of regulatory issuances cannot amend provisions of a law.”

Another flaw of the proposed circular, according to PIRA, was its “double standard” in taxing gross receipts of non-life and life insurance companies. For health and accident insurance, for example, which are offered by non-life companies, gross receipts are subject to the 12-percent expanded value added tax (EVAT) while the same products when offered by life insurance companies would only be charged with a five-percent premium tax.

“This violates the equal protection clause of the Constitution as there appears to be no reasonable basis why non-life insurance companies engaged in accident and health insurance contracts and their clients are being discriminated against,” Ramajo said.

The PIRA chairman added that since VAT is eventually passed on to customers, accident and health insurance products of non-life companies thus become more expensive and less attractive compared to similar products being offered by life insurance companies.

“As a rule, taxes or levies should be applied uniformly on the basis of the nature of the transaction being taxed alone, regardless of the persons or entities involved,” he said.

PIRA has been protesting the overtaxation of the industry which it cites as one of the main reasons for its slow growth. Among countries in Asia, the Philippines requires the most number of taxes from insurance which makes insurance products more expensive.