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Chuks Udo Okonta
The signing of the 2020 Finance Bill into law by President Muhammadu Buhari, has been welcomed by insurance operators, who said the Act, has brought great tax relief to insurance business.
The Special Adviser to the President, Femi Adesina, in a statement yesterday, said the signing was sequel to its passage by the National Assembly and subsequent forwarding by the legislature to the President for assent.
According to Adesina, President Buhari, while presenting the 2020 Appropriation Bill to the National Assembly, had also presented the Finance Bill and said: “This Finance Bill has five strategic objectives, in terms of achieving incremental, but necessary, changes to our fiscal laws.
“These objectives are; Promoting fiscal equity by mitigating instances of regressive taxation; Reforming domestic tax laws to align with global best practices; Introducing tax incentives for investments in infrastructure and capital markets; Supporting Micro, Small and Medium-sized businesses in line with our Ease of Doing Business Reforms; and Raising Revenues for Government.
“The draft Finance Bill proposes an increase of the VAT rate from five per cent to 7.5 per cent, as such, the 2020 Appropriation Bill is based on this new VAT rate,” he added.
Reacting to the new law, the Director-General, Nigerian Insurers Association (NIA), Mrs. Yetunde Ilori, said the tax review which was part of the new law, is something the industry has been looking forward to, stressing that the review is a welcome and favourable developments to the insurance industry.
She posited that the tax relief will affect all stakeholders. “This is something we have been working with KPMG over the years we are happy we finally got the relief,” she said.
The Executive Secretary, Nigerian Council of Registered Insurance Brokers, Fatai Adegbenro; said the tax review is a good development for insurance industry as the amounts incurred on the unnecessary taxes would now be injected into the operations of the insurance companies.
The New law has 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 Law, 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 now be limited to “income derived from the investment of shareholders’ funds”. This clarifies taxable income and limits it to income accruing to the insurance company as against income accruing to the insurance fund.
In the controversial law, which has been repealed with the new law, 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.