Dennise Williams, Staff ReporterTHE MINISTRY of Finance & Planning (MOF) has doubled the level of two key taxes paid by life insurance companies in response to the industry's call to remove the 15 per cent General Consumption Tax (GCT) on health insurance premiums, said Yasmine McCormack, technical specialist in the Taxpayer Audit and Assessment Department (TAAD).
Currently, the insurance companies pay 7.5 per cent on investment and other income and pay 1.5 per cent on premium income. When the new taxes come into effect, they will pay 15 per cent on investment and other income and three per cent on insurance premiums.
The GCT on premiums was seen as being a less attractive option for clients, making them disinclined to purchase the products. The life industry plays a vital role in the provision of health insurance plans, and over the years several companies have diversified their offerings to include policies that provide critical illness benefits.
While both parties have reached a level of compromise in terms of the source of taxation due to the Government, the actual date of implementation of the new tax regime is a bone of contention. The controversy comes from at least two sources.
Firstly, notice of the tax increase has been published in the newspapers, or gazetted on December 31, 2003, but the actual date of implementation has not been made clear to the insurance industry.
Tony Roberts, vice-president of the actuarial department of Life of Jamaica (LOJ) explains, "We believe that the tax will be due retroactively as at January 1, 2004. But there is still some confusion. We are not certain when the tax comes into effect."
The second source of contention relates to how to calculate the tax due."We expect a fight from the insurance industry on this
matter," said Yasmine McCormack.
She said, "The case law says taxes will be due on income earned for the fiscal year. However, companies are going to argue that income before December 31, 2003 is not taxable. It will be left up to Omar Davies, Minister of Finance & Planning to make a decision."
However, at least one insurance company has factored the new taxes on premium income into their products.
Explains Mr. Roberts, "Where we can, we will pass on the tax increases. It will in effect mean a lower return to our clients. But in the case where we can't, we will have to absorb the increase as a company. The three per cent tax is already priced in two of our insurance products."
When pressed about the impact on the bottom line, Mr. Roberts only stated, "We will have to absorb a lot."
DAMAGING EFFECT
Ingrid Chambers, managing director of NCB Insurance Company Limited, in previous statements spoke of the damaging effect of the new tax increases on the industry.
"The new measures to increase the tax take from the industry could weaken the industry. It has far-reaching implications for the competitiveness of insurance and long-term savings and investments products sold by local insurance companies. As the regulators make it more and more challenging through actions like the application of increased premium taxes, which is three per cent of every dollar paid in premiums, the grey market for insurance products mushrooms right under our noses."
However, Cathy Park-Thwaites, senior vice-president of investments at LOJ stated, "The change in taxes is not significant enough to impact our sales."
Mrs. McCormick stated, "The insurance industry had asked the MOF for the tax increase. They said that it is better for them to pay the tax on company profits than for their clients to pay GCT on health insurance. And other companies in corporate Jamaica pay 33 1/3 per cent on corporate taxes."
