Insurance Companies Lose N23bn To Multiple Taxation
Fifty eight insurance companies in the country have decried the increasing multiple taxation they are subjected to by tax authorities which has made them cough out about N23 billion as taxes in the previous and the current financial year, LEADERSHIP can exclusively reveal. LEADERSHIP findings show that in the 2016 financial year, insurance companies paid N11 billion as taxes from a Profit Before Tax(PBT) of N29.4 billion declared and were left with Profit After Tax (PAT) of N18.3 billion, after the taxes have been deducted.
Moreover, in the current financial year, market observers expect underwriters to pay as much as N12 billion as taxes for the 2017 financial year end, a picture that will become clearer by the time the remaining underwriters release their 2017 accounts. Apart from paying tax on management expenses, short term lending, among others, insurers were also mandated to pay tax on claims, which is the core business of underwriting, meaning that, the higher the claims paid by an underwriter, the higher the tax to be paid on such claims.
The federal, state and local governments had embarked on aggressive revenue generation, picking on corporate bodies including insurance firms, as the major source of their tax revenue. Enforcement of these taxes reached an alarming rate in 2017 and in the current year with some insurance companies shut down by the Federal Inland Revenue Services (FIRS), until they were made to clear off their outstanding taxes.
While the situation has thrown the books of struggling insurers into negative, some had their little profit cut short by these taxes, while the big underwriters were equally suffocating from this multiple taxation. As insurance operators continued to be subjected to arbitrary charges and levies by federal and state tax agencies, experts said the situation is making the operating environment uncomfortable for underwriters, thereby, increasing their expenses in the long run.
However, the major surprise is the payment of tax on claims, which, according to insurance business, is an expense, yet, tax authorities are categorising it as income. Insider sources revealed that there are ongoing discussion between the Nigerian Insurers Association (NIA) and Federal Inland Revenue Service (FIRS) to review the provision that mandates underwriting firms to pay tax on their claims, among others.
Moreover, the operators have also approached the Ministry of Finance through the National Insurance Commission (NAICOM) to find a lasting solution to the issue. Speaking on the development, chairman, NIA, Mr. Eddie Efekoha said insurance industry is subjected to multiple taxation that is gradually eroding the profits of insurance companies, thereby, affecting their ability to give good returns on investment to shareholders as well as stakeholders.
Stating that some of its member’s offices were closed down by agents of FIRS for tax defaults, Efekoha, who is also the managing director of Consolidated Hallmark Insurance Plc, noted that NIA has intervened and is already having a mutual understanding with FIRS to soft-pedal on this issue. He, however, believes the permanent solution lies in amending the tax code which takes some times to amend, as it has to be amended by the National Assembly.
“Giving returns on investment to shareholders and stakeholders has a lot to do with how much you make as profit but in a scenario like ours, where we are subjected to multiple taxation, it becomes difficult to pay dividend to shareholders. The more tax we pay, the more the returns to our stakeholders diminish. If you are to pay tax on claims and on management expenses, what this means is that you have little or nothing left to pay dividend to shareholders,” he pointed out.
In his own reaction, general manager, Retail Life, AIICO Insurance Plc, Mr. Sola Ajayi, said, the tax code in Nigeria is too hard on both life and non-life insurance companies as they were not allowed to take advantage of deferred tax, especially, for life business. “We cannot take advantage of those taxed assets because of Section 33 and Section 16 of the tax code. Section 33 is saying, we must pay minimum tax, while Section 16 is saying, even when you have a tax exempt income, you must still come back and pay something.
So, you cannot exempt paying tax on the life business where some are even incurring losses and you cannot fully take advantage of all your reliefs,” he said. He pointed out that though, NIA and KPMG have done some work on this, operators, still need to go to the National Assembly to change the Act to exempt particularly, Life business from paying taxes when they are making a loss or when they have relief allowances to take advantage of.
For Non-life business, he said, the tax code does not recognise the whole claims paid as expense, noting that, no matter the claims you paid, you can only relief 25 per cent of it. According to him, “If you pay claims of any amount, the law does not allow claims as expenses, it only allow 25 per cent of it.
So, why are we in operation? Is it not to pay claims?” he queried adding further that “the tax man is saying, no matter the claims you paid, you can only relief 25 per cent of it. That is really hard on us. That is why you see some insurance companies are not willing to pay claims. At the end of the day, it’s tax liable expenses.”
Source: LEADERSHIP
