|
THE
Department of Finance (DOF) said it supports the move of
legislators to reduce the tax on gross insurance
premiums, but that it should be put in place later in
the year as it may affect President Arroyo’s plan of
having a balanced budget.
In a
position paper, the department said it backs the
proposal even if there is a negative revenue impact once
the 5-percent premium tax is pared down to 2 percent.
However,
there should be measures such as the rationalization of
fiscal incentives to compensate for lost revenue, the
department said.
“We
believe that it is more prudent, from the revenue
perspective, to put in place revenue-losing proposition
simultaneously with revenue-enhancing measures,” the DOF
said in its paper submitted to Congress.
Sen.
Loren Legarda, who introduced Senate Bill 2117 embodying
the tax reduction, explained that the remedial
legislation was crafted so more Filipinos would be able
to enjoy adequate voluntary life-insurance protection.
“One sure way to achieve this is by reducing the cost of
premiums through lower taxes,” she said.
Another
bill, Senate Bill 596, an act reducing the tax insurance
premium under certain conditions, authored by Sen.
Jinggoy Ejercito Estrada, explains that it may develop
the country’s life-insurance industry if the tax rate is
reduced to just 2 percent, or the same rate as that in
the United States.
“The
proposed reduction in premium tax would bring down the
cost of insurance protection which can be passed on to
the policyholders in the form of lower premium or higher
insurance coverage with the same amount of premium,”
according to the explanatory note of Estrada.
The bill
hopes to amend part of Section 123 of the National
Internal Revenue Code, which sets the rate of the tax on
life-insurance premiums.
Legarda
lamented that only three million Filipinos, or less than
4 percent of the population, have voluntary
life-insurance coverage. “We want to encourage more
Filipinos to invest in life-insurance policies,” she
said, noting that premiums paid by individual Filipinos
should be treated as part of their long-term savings.
“We have
to strike a balance between the need to spur long-term
savings on one hand, and the need for government revenue
on the other hand,” she added.
According to Legarda, the Philippine Life Insurance
Association (PLIA) conveyed its support for the measure,
predicting that passage of the bill would boost
long-term savings and help local life insurers compete
globally.
She also
noted that the Philippines is the only country in
Southeast Asia that imposes a 5-percent tax on
life-insurance premiums.
The
finance department, however, said the annual revenue
impact of the bill would amount to a loss of P1.2
billion and that there should be safeguards on how to
recover this.
In 2006,
the Bureau of Internal Revenue collected P1.7 billion
from premium tax or about 4.5 percent of the total
collected.
Legarda
argued that the bill proposing a lower tax rate would
not result in forgone revenue for the government as
“cheaper premiums owing to less taxes would drive down
the cost of life insurance and eventually expand
coverage, thus enlarging the base of taxable premiums
and enhancing government revenue over time.”
She also
said lower taxes would reinforce the role of life
insurers in encouraging savings, citing their role in
developing the capital markets via massive investments
in listed firms, commercial papers and bonds.
“If we
look at the top 100 shareholders of every major
corporation listed on the Philippine Stock Exchange,
life insurers are among their biggest long-term
investors.” (With reporting from Butch Fernandez) |
