Insurers lament taxation on operations, seek intervention
Industry operators have lamented the application of Companies Income Tax (Amendment) Act 2007 on their businesses. The Act allows tax deductions on claims paid to clients, a situation insurers see as huge ignorance.
The insurance companies also say that the impact of the taxation is negatively showing on their profitability and bottom line, denying the nation the benefit of insurance as provider of long term fund for economic development.
Consequently, the insurers were planning to collaborate with some tax consultants in the country with the aim of getting the Federal Inland Revenue Service (FIRS) to reconsider the Act and make necessary adjustments.
The insurers are praying that the legislation should not be allowed to remain in its present form because it imposes huge tax burden on insurance companies to the extent that the premium income being paid to arrange insurance contract is taxed.
As the amount paid by insurers as claims to customers who suffered misfortune were also being taxed should it exceed certain amount of money, the insurance operators believe this anomaly was due to the fact that the people do not understand how insurance operates.
The Act which amends the Companies Income Act 1990, among other things, provides in Section 14 that (1) Notwithstanding anything to the contrary contained in this Act, insurance business shall be taxed as-
(a) an insurance company, whether proprietary or mutual, other than a life insurance company; or
(b) a Nigerian company whose profit accrued in part outside Nigeria, the profit on which tax may be imposed, shall be ascertained by taking the gross premium interest and other income receivable in Nigeria less reinsurance and deducting from the balance so arrived at, a reserve for unexpired risks at the percentage consistently adopted by the company in relation to its operations as a whole for such risks at the end of the period for which the profits are being ascertained, subject to the limitation imposed in subsection (8) (a) of this section.
Subsection (2) adds that “The profits on which tax may be imposed in an insurance company which is a life insurance company, whether proprietary or mutual, other than a Nigerian company which carries on business through a permanent establishment in Nigeria shall-
(a) be the investment income less the management expenses, including commission, subject to the limitation imposed in subsection (8) (b) of this section; and
(b) where the profits of the company accrue in part outside Nigeria, be that proportion of the total investment income of the company as the premium earned whether received or receivable, less the agency expenses in Nigeria and a fair proportion of the expenses of the head office of the company but where the insurance company has its head office outside Nigeria the Board may substitute some basis other than that prescribed in this paragraph for ascertaining the required proportion or the total investment income.”
By: Modestus Anaesoronye