Life insurers back bill seeking to lower tax on policies

MANILA, Philippines - Relief from the five-percent premium tax and the documentary stamp tax (DST) on life insurance policies would result in cheaper premiums or more benefits for the insured public, an insurance industry official stressed.

The Philippine Life Insurance Association (PLIA) said reports the Department of Finance (DOF) is making a last-ditch effort to block the signing into law of a bill that will reduce the premium tax from five 14 percent to two percent is worrying the industry players.

The PLIA proposes a DST ranging from P10 to P100 depending on the premium, and that after five years, the premium tax and the DST will be removed.

Newly-installed PLIA president Mabini L. Juan said the bill soon be forwarded to Malacanang for signing into law.

“We will attach a position paper or an appeal to President Arroyo regarding the importance of signing the proposed law,” Juan said. “We are also willing to deliver the position paper, the proposed law and personally appeal to the President.”

The DOF agrees with the reduction of the premium tax to two percent, but wants to retain the DST and keep it in place beyond 2015.

But tax experts of Punongbayan & Araullo (P&A) pointed to the inequities in the treatment of taxes in the case of the country’s financial sector.

“The five percent premium tax is imposed on the gross premium received, a large portion of which comprise of savings. However, no gross receipt tax (GRT) is imposed when banks receive deposits for saving,” P&A said in a study.

It likewise said a pre-need company is subject to value-added tax (VAT) and not to premium tax. The DST imposed on pre-need contracts is lower by 0.15 percent compared to that on insurance policies.

PLIA also warned that if the National Government does not protect the local insurance industry, it will succumb to the pressure of foreign insurers after 2015. That is because the ASEAN Free Trade Agreement (AFTA) on financial institutions would go into full swing.

PLIA said that most of the ASEAN insurers have a higher capital base than their Philippine counterparts. They added that a lot of the strong insurers based in the ASEAN states are not hindered by tax regulations and investment options, unlike in the Philippines where insurers are limited for the most part to government securities.

“In a free trade environment, the domestic insurers may not be able to compete with their ASEAN counterparts, and that would not only mean less government revenues but the failure of government to fulfill its mandate of developing the domestic financial institutions,” the group said.