By McPherse Thompson, Assistant News Editor
Moore
INSURANCE COMPANIES have told Government that the imposition of the General Consumption Tax (GCT) on life insurance premiums was ill-advised, arguing that it was a long-term investment option, and not in keeping with the principle of the tax.
The Life Insurance Companies Association of Jamaica (LICA), which represents eight of the island's largest insurance companies, has written Finance and Planning Minister Dr. Omar Davies requesting a meeting to review the tax measure, which will also be applicable to health insurance.
The group comprises Guardian Life; Life of Jamaica; Island Life; Omni Insurance Services, owned by National Commercial Bank (NCB); Scotia Life, owned by the Bank of Nova Scotia; CUNA Mutual, and Blue Cross of Jamaica, the island's major health insurance provider.
The effect of GCT on premiums is that Jamaica's more than 500,000 insurance policyholders will now be required to pay increased premiums monthly.
However, according to the LICA president, Earle Moore, more than 20
Life insurance companies seeking to review new tax measures with Finance Minister
per cent of Jamaican policyholders do not live in the island. "They have set upPAP (pre-authorised payment) systems and leave the island," he said, adding, "you cannot now ask them to pay taxes on these premiums."
Mr. Moore, the chief executive officer of Guardian Life, which led the industry in terms of new annualised premiums last year, said "nobody will buy new insurance if they have to pay taxes on premiums."
The Ministry of Finance and Planning did not respond to queries about the meeting being requested by members of LICA.
However, according to LICA, the companies under its umbrella were already stretched in terms of their contribution to the Government coffers. Data provided by LICA show that last year, member companies paid more that $46 million in fees to assist in the operation of the Financial Services Commission (FSC), the regulatory body established to monitor the financial sector following the industry's insolvency problems during the 1990s.
They are also required to pay a 1.5 per cent tax on ordinary premiums, a 7.5 per cent tax on investment premiums, and $200 per policy issued as stamp duty.
LICA members have expressed consternation at the imposition of GCT particularly on life insurance policies, saying it is one of the main vehicles for long-term savings in Jamaica and is not consumption of goods and services as assumed by the levy.
According to the letter sent to the Finance Minister, a copy of which was obtained by Wednesday Business, the life insurance industry is also one of the main investors in long-term government bonds and lower sales would mean less investment.
'NO ONE WOULD INVEST'
LICA also contends that GCT on life insurance premiums is tantamount to charging GCT on savings and no one would invest in the product if they know they would get an automatic 15 per cent discount on their investments.
Imposition of the tax would also make the informal insurance sales market more competitive than their formal counterparts, said the letter.
LICA points out that the Government has just spent billions of dollars through the Financial Sector Adjustment Company (FINSAC) to rescue a number of key companies in the insurance sector and charging GCT would have a dramatic effect on companies' sales and long-term profits.
Another downside to the tax, said LICA, is that most premiums are paid through pre-authorised payment systems and salary deductions, and policyholders would have to give authorisation to any change in premium. "This would create immense administrative difficulties to contact the over 500,000 policyholders," said the letter.
Furthermore, since life insurance premiums are not calculated to include GCT, "in the event that we are unable to get the approval of policyholders, the benefits provided would have to be reduced because of the tax," the letter said further.
LICA has suggested that instead of the GCT on life insurance premiums, the Government could impose the tax on all services provided by financial institutions, as well as charge GCT on health premiums. "This is a service provided to corporations and therefore there would be less administrative difficulty involved," said the letter to Dr. Davies.
