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Taxation of Insurance

Section VI. Taxation of Insurance. Taxation of Insurance. UNDERSECRETARY GIL S. BELTRAN DEPARTMENT OF FINANCE PHILIPPINES 26 October 2009. Outline of Presentation. I. Background II. Issues. I. BACKGROUND. Insurance sector taxes are categorized into three (3) groups:

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Taxation of Insurance

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  1. Section VI. Taxation of Insurance Taxation of Insurance UNDERSECRETARY GIL S. BELTRAN DEPARTMENT OF FINANCE PHILIPPINES 26 October 2009

  2. Outline of Presentation I. Background II. Issues

  3. I. BACKGROUND

  4. Insurance sector taxes are categorized into three (3) groups: • Taxes on transactions; • Taxes on income; and • Taxes on documents

  5. a. Transaction Taxes • Taxes on transactions are either imposed on gross receipts, premiums or on value added

  6. b. Income Taxes • Taxes on income are imposed either on: • Gross revenues or • Net income (gross revenues less expenditures)

  7. Investment incomes • In general, investment incomes are either subject to: • Standard corporate income tax; and • Withholding tax based on gross revenues.

  8. c. Documentary Stamp Taxes • A documentary stamp tax is imposed on issuance of financial documents and contracts.

  9. II. ISSUES

  10. How should insurance underwriting and investment income and fees be taxed? • Tax neutrality should be respected otherwise, tax arbitrage will be resorted to. • There’s justification for harmonizing the rates because investments compete with each other. • Global taxation of income ideal system but for financial instruments, final withholding enhances collection efficiency. Creditable withholding more equitable but complicates the task of collector. • Problem: • Standard rate for corporation income tax still high for most countries (25-30%) • Withholding rate cannot be more than 20%, deterrent to investment.

  11. In what directions are new products evolving? How should the tax system cope? • Development of microinsurance • Still untaxed or tax-exempt • Development of derivatives/swaps/relending transactions/hedging instruments • Tax base should be the net value added of transaction and net of reserves • Reinsurance growing • Net premium/interest is taxable base

  12. What are the tax exemptions of offshore basing of insurance and reinsurance? • Exports of services exempt from taxation; tax should be paid in the country of consumption. • Penalties imposed by countries if insurer is not licensed to do business in the country of insured

  13. How can and should VAT apply to insurance activities? • VAT is the ideal tax for insurance companies. • However, tax base is difficult to compute in some cases. • Second best – Percentage tax equivalent to VAT Or apply on net value

  14. Thank you…

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