How N23b multiple taxes worsen industry performance
Operators call on govt, regulators to review rules
No less than N23 billion assessed to be multiple tax-dominated would paid out between the previous and current financial year by the insurance industry.
The amount, which is in excess of the capital base requirement for nearly five new Composite Insurance companies, has irked operators, who said that the sector could only realise its potential if government at all levels back-step from the oppressive tax regime.
The Guardian findings show that in the 2016 financial year, insurance companies paid N11 billion as taxes from a profit before tax of N29.4 billion declared and were left with profit after tax of N18.3 billion.
In 2017 financial year, which results are trickling, market observers expect underwriters to pay as much as N12 billion as taxes, a picture that will become clearer by the time the remaining underwriters release their 2017 accounts.
These multiple charges, according to the operators, are perpetrated by the double count of the tax authorities on claims payments to policyholders and the companiesí profits.
Specifically, The Guardian learnt that 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 generation, picking on corporate bodies including insurance firms, as the major source of their tax revenue.
Enforcement of these taxes reached an alarming rate in 2017 and in the current 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 thrown the books of struggling insurers into negative, some had their little profit cut short by these taxes, while the big underwriters were equally suffocating from this multiple taxation.
As insurance operators continue to be subjected to arbitrary charges and levies by federal and state tax agencies, experts said the situation is making the operating environment uncomfortable for underwriters, thereby, increasing their expenses in the long run.
However, the major surprise is the payment of tax on claims, which by insurance business principles, is an expense, yet tax authorities are categorising it as income.
Insider sources revealed that there are ongoing discussions between the Nigerian Insurers Association and FIRS to review the provision that mandates underwriting firms to pay tax on their claims, among others.
Moreover, the operators have also approached the Ministry of Finance through the National Insurance Commission (NAICOM) to find a lasting solution to the issue.
Speaking on the development, immediate past Chairman of NIA, Eddie Efekoha, said insurance industry is subjected to multiple taxation that is gradually eroding their profits, thereby affecting their ability to give good returns on investment to shareholders, as well as stakeholders.
Stating that some of its members offices were closed down by agents of FIRS for tax defaults, Efekoha, who is also the managing director of Consolidated Hallmark Insurance Plc, noted that NIA has intervened and is already having a mutual understanding with FIRS to soft-pedal on this issue.
He, however, believes the permanent solution lies in amending the tax code, which takes some times to amend, as it has to be amended by the National Assembly.
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