Ins industry resents decision to impose 10pc AIT on premium
Friday, 26 October 2012
Jasim Khan
The decision of National Board of Revenue (NBR) to impose a 10 per cent advance income tax (AIT) on payment of insurance premium has become under strong criticism from the industry people.
In its latest board meeting held last week, the NBR took this decision. Its outgoing chairman Nasir Uddin Ahmed was in the chair at the meeting.
When asked, a high official of the NBR who was also present in the board meeting told the FE that the decision was taken in accordance with the provisions of the Income Tax Ordinance 1984.
"After analysing the Income Tax Ordinance, we have come to the decision that insurance premium is a service and the companies should pay a ten per cent income tax for it," the official said.
He said under the provisions of that ordinance, 'tax should be deducted at source from any payment to any person for rendering any service at the rate of 10 per cent on the amount payable at the time of such payment.'
But industry leaders claimed that insurance premium "is not considered as an immediate source of income because it can be called so only after meeting the liabilities on the part of an insurance company".
When asked, Managing Director of Reliance Insurance Limited Akhtar Ahmed said this is a very basic idea that insurance premium is not an income as many other features of insurance business are relevant to it.
"The re-insurance coverage is required in case of general insurance where risks are shared between two parties but local companies have to pay a large amount of money as re-insurance fees," he said adding "thus it is not clear how AIT can be realised from the overseas companies."
Akhtar Ahmed said the section of Income Tax Ordinance is not related to insurance premium; it concerns stevedoring agencies and security services.
"Non-life insurance is a contract of indemnity whereby a promise of compensation is made for specific losses, arising out in the future, in exchange for payment of premium," he clarified.
Earlier, Secretary General of Bangladesh Insurance Association Mollah Md Nurul Islam wrote a letter to the NBR chairman where he argued that an insurance company, after meeting claims, business expenses, overheads and various technical reserves, can only earn any profit or can incur any loss for which deduction of tax at source is not applicable for the insurance sector.
He said the deduction of tax at source on insurance premium has never been applied in Bangladesh since its inception and it is not applicable in other countries of the world.
Islam requested the NBR to keep the insurance industry outside the ambit of AIT.
The country has a total of 60 insurance companies among which 43 are non-life and 17 life insurance ones.
The premium of the insurance companies until 2010 rose to Tk 55.08 billion for life insurance and Tk 14.88 billion for non-life insurance businesses.
The decision of National Board of Revenue (NBR) to impose a 10 per cent advance income tax (AIT) on payment of insurance premium has become under strong criticism from the industry people.
In its latest board meeting held last week, the NBR took this decision. Its outgoing chairman Nasir Uddin Ahmed was in the chair at the meeting.
When asked, a high official of the NBR who was also present in the board meeting told the FE that the decision was taken in accordance with the provisions of the Income Tax Ordinance 1984.
"After analysing the Income Tax Ordinance, we have come to the decision that insurance premium is a service and the companies should pay a ten per cent income tax for it," the official said.
He said under the provisions of that ordinance, 'tax should be deducted at source from any payment to any person for rendering any service at the rate of 10 per cent on the amount payable at the time of such payment.'
But industry leaders claimed that insurance premium "is not considered as an immediate source of income because it can be called so only after meeting the liabilities on the part of an insurance company".
When asked, Managing Director of Reliance Insurance Limited Akhtar Ahmed said this is a very basic idea that insurance premium is not an income as many other features of insurance business are relevant to it.
"The re-insurance coverage is required in case of general insurance where risks are shared between two parties but local companies have to pay a large amount of money as re-insurance fees," he said adding "thus it is not clear how AIT can be realised from the overseas companies."
Akhtar Ahmed said the section of Income Tax Ordinance is not related to insurance premium; it concerns stevedoring agencies and security services.
"Non-life insurance is a contract of indemnity whereby a promise of compensation is made for specific losses, arising out in the future, in exchange for payment of premium," he clarified.
Earlier, Secretary General of Bangladesh Insurance Association Mollah Md Nurul Islam wrote a letter to the NBR chairman where he argued that an insurance company, after meeting claims, business expenses, overheads and various technical reserves, can only earn any profit or can incur any loss for which deduction of tax at source is not applicable for the insurance sector.
He said the deduction of tax at source on insurance premium has never been applied in Bangladesh since its inception and it is not applicable in other countries of the world.
Islam requested the NBR to keep the insurance industry outside the ambit of AIT.
The country has a total of 60 insurance companies among which 43 are non-life and 17 life insurance ones.
The premium of the insurance companies until 2010 rose to Tk 55.08 billion for life insurance and Tk 14.88 billion for non-life insurance businesses.