The Federal Inland Revenue Service (FIRS) has proposed to the National Assembly to amend Section 16 of the Companies Income Tax Act (CITA) to allow a level-playing field to insurers, its Chairman, Babatunde Fowler, has said.
Fowler, represented by FIRS Regional Coordinator, Mrs Toluwalase Akpomedaye, spoke at a seminar on, “Taxation matters in insurance value chain”, organised by Leadway Assurance Limited in Lagos.
Insurers had criticised the controversial section, which set rules on insurance business taxation, describing it as a burden.
The FIRS boss stated that under the CITA, non-life insurance firms are taxed on their gross premiums and interests as well as other receivables less returned premiums, premiums paid on re-insurance and reserve for unexpired risks.
He noted some provisions of the laws that were unfavourable to the industry and that it was in line with these that the steps were taken to amend the provisions.
He stressed that this would allow for equity and fairness.
He said insurance plays a pivotal role in the economy as it seeks to help individuals and businesses manage risks by transferring and sharing their burden with the insurance carrier.
He said: “Over the years, the insurance industry has undergone significant reforms and is a fairly developed sector. Insurance penetration in Nigeria is still very low and total contribution of the industry to GDP is within the one per cent range. There is need for stakeholders to work together to increase the size and contribution of the sector not only to GDP, but also to tax collection.
“Generally, there are two broad categories of insurance business in Nigeria which includes Life insurance business and non-life insurance. Non-life insurance include fire, accident, motor vehicles, burglary, marine, G-in-transit, personal accident, loss of profit, public liability, workmen compensation, all risks, engineering policies, etc. Nigerian Re-Insurance Corporation acts as insurer to the insurance companies. In Nigeria, there are many international and indigenous insurance companies. Insurance like any other economic activity is subject to the tax rules in Nigeria. Under the CITA, non-life insurance companies are taxed on the basis of their gross premiums and interest as well as other receivables less the following: (i) returned premiums (ii) premiums paid on re-insurance (iii) reserve for unexpired risks
“Section 16 of the CITA set out specific rules with respect to the taxation of insurance business. CITA having identified the specialised nature of the insurance business dedicates a whole session of the Act to the taxation of the insurance industry, for the treatment of income derived from insurance business. Section 16(8) of CITA allows the companies to deduct a percentage of the premium income into a reserve before arriving at the total profit for tax purposes.”
He however called for a yearly tax interactive session by stakeholders to address tax concerns clogging the insurance business, adding that such sessions have helped foster understanding with other sectors.
He pledged FIRS’ commitment to the industry, stressing that the concerns expressed by operators were being looked into.
He charged operators to pay tax, adding that the economy needs tax to thrive.
In a presentation by an official of PricewaterhouseCoopers (PWC), Kenneth Erikume said tax and insurance are two important aspects of the economy that are yet to live up to their potential.
He noted that insurance faces a lot of challenges and that strict application would kill the industry.
Managing Director, Leadway Assurance Limited, Oye Hassan-Odukale said the tax sessions would help improve the relationship between FIRS and the industry.
He noted that the event was part of his company’s contributions to the development of the industry and the economy.
He agreed that there was need for the industry to have yearly interaction fora with FIRS and Lagos State Inland Revenue Service (LIRS).