How insurers’ N37 billion tax affects industry growth
Tax
About 55 life and non-life underwriting companies in the country have paid N36.5 billion as tax to the government through the Federal Inland Revenue Service (FIRS) in the last five years.
The Guardian reliably gathered that between 2013 and 2017 financial years, these underwriters generated N100.4 billion as Profit Before Tax (PBT) and were left with Profit After Tax (PAT) of N63.9 billion, having paid N36.5 billion as tax to the government.
The tax paid translates to about 35 per cent of the profit made within this period.
A data sourced from the Nigerian Insurers Association (NIA) showed that insurance companies made N9.8 billion as PBT, which was reduced to N4.9 billion after tax, having paid N4.8 billion as tax in 2013 financial year, while the industry recorded N6.3 billion PBT in 2014, which went into a negative of N691 million, after the operators paid about N7 billion as tax.
In 2015, insurers made N11.3 billion profit, but the profit reduced to N6.1 billion, after paying N5.2 billion tax in that financial year.
In 2016, the companies paid N11 billion as taxes from PBT of N29.4 billion declared and were left with PAT of N18.3 billion.
Similarly, the insurers made a profit before tax of N43.8 billion in 2017 financial year and paid N8.3 billion tax to the government, leaving a profit after tax of N35.5 billion.
Although, tax paid to government by insurance companies in 2018 financial year remains sketchy, as they are just releasing their financial accounts, there are indications that the tax could rise above N10 billion, given government’s plans to generate more revenue locally to finance the 2019 national budget.
Apart from paying tax on management expenses, short term lending, among others, insurers were also mandated to pay tax on claims, which is the core business of underwriting, meaning that the higher the claims paid by an underwriter, the higher the tax to be paid on such claims.
The federal, state and local governments had embarked on aggressive revenue hunt, picking on corporate bodies like insurance companies, as a major part of the tax drive.
Enforcement of these taxes reached an alarming rate last year with some insurance companies shut down by the Federal Inland Revenue Services (FIRS), until they were made to clear off their outstanding taxes.
While the situation has a negative implication on the books of some struggling insurers, some had their little profit cut short by these taxes, while the big underwriters were not exempted from the impact of these taxes.
NIA, under the leadership of its past Chairman, Eddie Efekoha, had complained that insurance industry is being subjected to multiple taxation that is gradually eroding the profits of insurance companies, thereby, affecting their ability to give good returns on investment to shareholders as well as stakeholders.
Efekoha, however, believes the permanent solution lies in amending the tax code, which takes some times to be amended, as it has to go through legislative processes at the National Assembly.
“Giving returns on investment to shareholders and stakeholders has a lot to do with how much you make as profit, but in a scenario like ours, where we are subjected to multiple taxation, it becomes difficult to pay dividend to shareholders.
“The more tax we pay, the more the returns to our stakeholders diminish. If you are to pay tax on claims and on management expenses, what this means is that you have little or nothing left to pay dividend to shareholders,” he said.
However, there was an ongoing discussion between NIA and FIRS to try to address this challenge.
Last year, the General Manager, Retail Life, AIICO Insurance Plc, Sola Ajayi, said the tax code in Nigeria is too hard on both life and non-life insurance companies, as they were not allowed to take advantage of deferred tax, especially, for life business.
“We cannot take advantage of those taxed assets because of Section 33 and Section 16 of the tax code. Section 33 is saying, we must pay minimum tax, while Section 16 is saying, even when you have a tax exempt income, you must pay something.
“So, you cannot exempt paying tax on the life business where some are even incurring losses and you cannot fully take advantage of all your reliefs,” he said.
For non-life business, he said, the tax code does not recognise the whole claims paid as expense, noting that, no matter the claims you paid, you can only relief 25 per cent of it.
According to him, “if you pay claims of any amount, the law does not allow claims as expenses, it only allow 25 per cent of it. So, why are we in operation? Is it not to pay claims?”
Related
Get the latest news delivered straight to your inbox every day of the week. Stay informed with the Guardian’s leading coverage of Nigerian and world news, business, technology and sports.
0 Comments
We will review and take appropriate action.