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Chuks Udo Okonta
The Federal Government has through the Executive Finance Bill recently passed by the National Assembly relieved insurers of an unwholesome tax burden that had hitherto drained their earnings.
The Bill, which is yet to be signed by President, Muhammadu Buhari, deleted certain inhibitive rules for insurance companies, making it possible for underwriting firms to carry forward losses indefinitely as opposed to the 4-year restriction that was in place.
According to the Bill, Life and non-life businesses would no longer be liable to special minimum tax provision and all wholly, exclusively, reasonably and necessarily incurred expenses will be tax deductible.
Furthermore, “taxable investment income” would be limited to “income derived from the investment of shareholders’ funds”. This seeks to clarify taxable income and limits it to income accruing to the insurance company as against income accruing to the insurance fund.
Nonetheless, the Bill, when passed into law, would be a game- changer in ensuring the fair taxation of insurance companies.
In the controversial law, which would be repealed immediately the new bill becomes an Act with the signing of the President, some sections compelled insurance companies to pay out their capital in the form of a minimum tax because they are almost always in a never-ending refund cycle with the tax authorities. Originally, the CITA was meant to amend and simplify controversial aspects in its policy, instead it has made it more obscure particularly for the insurance sector.
In Section 16(2)(a) of the CITA, the profits of a life business insurance company are calculated by taking management expenses, including commission, subject to subsection (8)(b) of the Act from gross income (investment income and revaluation surplus).
For non-life businesses, section 16(1)(b) states that profits will be calculated for tax purposes by deducting the reinsurance cost and a reserve for unexpired risk (the premium corresponding to the time period remaining on an insurance policy), subject to subsection (8)(a) of the Act from a gross premium, interest and other income receivable in Nigeria.
The Chairman, Nigerian Insurers Association (NIA) Tope Smart, who was elated with the relieve brought by the Bill, told Inspenonline that the Bill had settled the issue of unwholesome tax burdens placed insurers.