Non-life insurers seek tax reform to boost profitability

MANILA, Philippines - The non-life insurance industry is urging government to implement strategic tax reforms to increase its profitability and prepare it for the Asean integration in 2015.

The Philippine Insurance and Reinsurers Association (PIRA) said it is seeking a reduction in the industry’s tax burden, which account for more than 25 percent of premiums paid.

PIRA, the only trade organization in the non-life industry, is pushing for the removal or reduction of the valueadded tax, the documentary stamp tax, income tax, municipal tax, tax on investment, and the controversial fire service tax.

PIRA general manager Fortunato Peralta said the industry wants to get rid of the heavy tax burden to make their products more affordable and competitive.

“The very same taxes will allow our prospective competitors in the Asean region to enjoy a tremendous tax arbitrage advantage come 2015,” Peralta said.

The country’s non-life insurance sector is among the most tax-heavy industry in the Asean region.

“Unless abolished or substantially reduced, these taxes are thus expected to continue as heavy luggages on the backs of the local companies as they enter the bigger arena of competition,” the PIRA official added.

The insurers pointed out that reducing the tax burden will mean greater sale of insurance products, which in turn, will redound to bigger tax revenues for the government and protection for the public.

A good example is the five-percent premium tax on life insurance policies, which was reduced to a little over two percent. That  resulted in the upsurge in sales of life insurance products, rising from P57 billion in 2009 (prior to the premium tax reduction) to P120 billion last year.

The country’s non-life insurance industry markets products which generally have a shelf life of one year. It services its agents upfront while having to surrender roughly 25 percent of the premiums collected to government.

“That will leave us with very little in terms of profits,” Peralta said.

The Insurance Commission has expressed support for moves to reduce the tax burden on the country’s insurance industry.

“Reducing the tax burden results in a bigger tax base, as proven by the experience with the life sector,” IC Commissioner Emmanuel M. Dooc, said.

He added that reducing the tax burden minimizes the risk of cutthroat competition, as situation detrimental to both the insuring public and the insurer itself.

Dooc said a draft bill is now being finalized by PIRA seeking to remove or reduce the various tax burden.

The non-life insurance industry reported a net income of P2.57 billion in 2012, down 22 percent from the 2011 earnings level of P3.3 billion. Assets ballooned to P125.5 billion, up 12 percent from the P112 billion in the previous year.

Gross premiums written were valued at P50.3 billion, down 4.5 percent from P52.7 billion in 2011. Thus, net premiums written fell 10.8 percent to P23.1 billion in 2012, from the P25.9 billion  the previous year.