COMMISSION earned by insurance brokers from transactions with insurance and reinsurance companies will now be liable to taxation under the new budget.
BY TATIRA ZWINOIRA
The new tax requirement was announced by Finance minister Patrick Chinamasa during his presentation of his 2016 National Budget last Thursday.
Speaking at a meeting organised by Southern African Parliamentary Support Trust (SAPST) on the reforms in the budget concerning tax, a consultant Josephine Matambo said the increment would allow insurance firms or brokers to claim credit on input tax they were charged from other suppliers.
“When you compare with other countries, you will find that short-term insurance is actually subject to value-added tax (VAT).
The thing with VAT is that it is useful because it takes off cascading cost on costs and allows you to claim credit on the tax payment that you have made. When you claim it back, you are actually reducing the cost structures of your business,” he said.
“But when you look into the insurance and banking industry, because they are not subject to VAT, their services are exempt, they will not be able to claim back the input tax that they were being charged by other suppliers because their services and products are exempt.”
Chinamasa, in his budget statement, said the tax proposal was considered in view of the constrained capacity of the industry, as evidenced by failure by some players to settle obligations to policy holders.
“I, therefore, propose to limit the VAT payable on short-term insurance to commission earned on the buying and selling of insurance policies by brokers and agents of insurance and reinsurance firms. This measure takes effect from January 1, 2016,” he said.
Senior economist Prosper Chitambara said taxes levied on goods or services were considered to be bad for the individual or society at large.
“Corrective taxes, or ‘sin’ taxes, are levied on goods and services that are considered to be bad for the individual or society at large. Examples include taxes on alcohol and cigarettes, and products and activities with negative environmental consequences,” Chitambara said.
“Corrective taxes can improve fiscal revenues, while at the same time, reducing socially and environmentally undesirable activities, thereby, promoting good public health.
“A review of literature in a number of countries has demonstrated that tobacco taxes reduce tobacco consumption, while providing a stable and reliable source of fiscal revenues.
“The Philippines increased excise taxes on cigarettes and alcohol in 2013. The tax hike resulted in an increase in cigarette prices and more than doubled the tobacco tax revenue collected in 2013 over 2012. Higher taxes on tobacco and alcohol together netted revenue estimated at $1,4 billion.”