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Chuks Udo Okonta
The proposal for an amendment of Section 16 of the Companies Income Tax Act (CITA) which places heavy tax burden on insurance companies is presently being examined by the office of the Attorney General of the Federation, Inspenonline has learnt.
The Chairman, Federal Inland Revenue Service (FIRS), Babatunde Fowler, said this at a seminar on, “Taxation matters in insurance value chain”, organised by Leadway Assurance Limited in Lagos.
Fowler, represented by FIRS Regional Coordinator, Mrs Toluwalase Akpomedaye, said the amendment of Section 16 of the Companies Income Tax Act (CITA) is to allow a level-playing field to insurers.
According to him, the Attorney General of the Federation, has to properly consider the proposal to ensure all necessary inputs are made before transmitting it to the National Assembly.
“From recent engagements, it has been identified that there are some provisions of the tax laws that are not favourable to the Insurance industry and several suggestion has been made.
“Further to these suggestion, proposals have been made to amend such provisions of the law in order to allow a level playing field to all taxpayers in line with the taxation canon of equity and fairness,” he said.
He noted that under the CITA, non-life insurance firms are taxed on their gross premiums and interests as well as other receivables less returned premiums, premiums paid on re-insurance and reserve for unexp ired risks.
He said insurance plays a pivotal role in the economy as it seeks to help individuals and businesses manage risks by transferring and sharing their burden with the insurance carrier.
“Over the years, the insurance industry has undergone significant reforms and is a fairly developed sector. Insurance penetration in Nigeria is still very low and total contribution of the industry to GDP is within the one per cent range. There is need for stakeholders to work together to increase the size and contribution of the sector not only to GDP, but also to tax collection.
“Generally, there are two broad categories of insurance business in Nigeria which includes Life insurance business and non-life insurance. Non-life insurance include fire, accident, motor vehicles, burglary, marine, G-in-transit, personal accident, loss of profit, public liability, workmen compensation, all risks, engineering policies, etc. Nigerian Re-Insurance Corporation acts as insurer to the insurance companies. In Nigeria, there are many international and indigenous insurance companies. Insurance like any other economic activity is subject to the tax rules in Nigeria. Under the CITA, non-life insurance companies are taxed on the basis of their gross premiums and interest as well as other receivables less the following: (i) returned premiums (ii) premiums paid on re-insurance (iii) reserve for unexpired risks,” he said.
He maintained that Section 16 of the CITA set out specific rules with respect to the taxation of insurance business, stressing that CITA having identified the specialised nature of the insurance business dedicates a whole session of the Act to the taxation of the insurance industry, for the treatment of income derived from insurance business.
According to him, Section 16(8) of CITA allows the companies to deduct a percentage of the premium income into a reserve before arriving at the total profit for tax purposes.
Kenneth Erikume of Pricewaterhousecooper (PWC), said tax and insurance are two important aspects of the economy that are yet to live up to their potential.
He noted that insurance faces a lot of challenges and that strict application of taxes would kill the industry.