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Komolafe queries govt on tax relief for insurance sector

Questions if percentage reduction will be applied to business license tax on gross premiums
XIAN SMITH
Guardian Business Reporter
xian@nasguard.com

Published: Jun 19, 2017

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Amid the announcement of reductions in the business license tax rate during the recent budget communication, questions have been raised on tax relief for the insurance sector.

Chairman of the Bahamas Insurance Association (BIA) Emmanuel Komolafe, in a recent interview with Guardian Business, queried whether a reduction to the current three percent business license tax rate on gross premiums would be announced before the conclusion of the budget debate.

“We note that the government sought to provide some tax relief to businesses by reducing the business license tax rate from 1.5 percent to 1.25 percent of turnover; and from 1.25 percent to one percent of turnover for hotels with turnover exceeding $400 million,” he said.

“While concerns had been raised about the imposition of this tax on revenue or turnover, rather than actual profits, the recent decision to reduce the business license tax rate was nonetheless welcomed by the private sector.

"The question within the insurance industry is whether an equivalent percentage reduction would be applied to the business license tax on gross premiums, which currently stands at three percent.”

Komolafe opined that the insurance industry should be treated with fairness and equity similar to other sectors that have or will enjoy the benefit of tax relief in these difficult times.

He further noted that the reduction in business license tax for the insurance sector should be equivalent to the percentage decrease for industries that are less taxed for the benefit of consumers.

“This is particularly necessary at a time when average disposable income is shrinking or non-existent and consumers are prioritizing payments based on their scale of preference. This brings the elasticity of demand for insurance to the fore,” said Komolafe.

“Consequently, the insurance industry is experiencing some attrition in policies at a time when the procurement and maintenance of an insurance policy is most critical.

“If we consider the reduction from 1.5 percent to 1.25 percent, this equates to a 16.7 percent decrease in the business license tax rate, while the reduction from 1.25 percent to one percent represents a 20 percent decrease in the business license tax rate.

“Using this as a reference point, the insurance sector should experience a reduction in business license tax rate of either 0.5 percent or 0.6 percent.

“It is our hope that this was an oversight and this issue will be duly considered and addressed prior to the conclusion of the budget debate.

"Additionally, the insurance industry had anticipated the removal of value-added tax (VAT) from insurance as promised by the current administration.

“However, we are cognizant of the fiscal condition in which we find ourselves as a nation and the rationale for the decision not to remove VAT from insurance at this time."

The BIA chairman maintained, however, that the reasoning behind the proposed removal of VAT from insurance products seems fair.

Insurance products are currently subject to a three percent tax on premiums, in addition to VAT, for an effective rate of about 10.5 percent, which many industry participants believe has made insurance unaffordable for many Bahamians.

“We believe the basis for the removal of VAT from insurance products is to increase access to property, casualty, life and health insurance.

“In the absence of insurance, the financial burden of rebuilding or meeting obligations following a catastrophe or life event would normally fall entirely on individuals.

“In a number of cases, particularly natural disasters, it ultimately falls on the government and by extension taxpayers, as seen in the cases of Hurricanes Joaquin and Matthew," he stated.

Komolafe noted that the BIA is scheduled to meet with the Deputy Prime Minister Peter Turnquest this week to continue discussions with the government on the matter.

 


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