An increase in value-added tax rates will harm the insurance industry and make it harder for the country to be competitive in the coming Asean integration, according to the Philippine Insurers and Reinsurers Association (Pira).
According to Pira Deputy Chairman Michael F. Rellosa, talks of increasing the VAT from 12 percent to 15 percent will only be another hurdle the nonlife insurers will have to overcome, apart from meeting the increased capital requirement, and dampens the chance of remaining competitive within the Asean, which is even now beginning to integrate.
“The total tax for [the nonlife industry] of 27.5 percent should [instead] be brought down to 5 percent. Imagine for every P100 premium, P27.50 is tax. What is left for the insurer is P72.50,” Rellosa told financial reporters at the sidelines of the 2016 Pira regional dialogue held at a Makati City hotel on Friday.
The breakdown of taxes being shouldered by the nonlife-insurance industry include the documentary stamp tax (DST), which is at 12.5 percent; local government (LGU) tax of 0.5 percent and varies depending on area; and a fire service tax of 2 percent.
With the VAT at 12 percent, the business of covering risks “will be more difficult,” Rellosa quickly added.
He further pointed out that, if the Philippine insurance industry wants to be competitive within the Asean, the tax imposed on the industry should be lowered instead. He cited as an example the VAT for the insurance industry in Singapore of only 7 percent or 8 percent.
“[The rate] should be lowered. There will be Asean integration. How can we be competitive [with a high rate]?” he asked rhetorically.
Rellosa also said the premium tax paid by the nonlife-insurance sector is not only the highest in the world but that the country’s income taxes is among the highest, as well.
The nonlife-insurance industry of the country posted a 12.2-percent increase in gross premiums written for 2015 totaling P74.6 billion, from P64.3 billion in 2014.
“This was brought about by a surge in premium for fire and allied perils, which registered a 16.8-percent growth, recording a total of P29.5 billion from the P25.2 billion in 2014,” Rellosa said.
As integration happens, the combined size of economies in southeast Asia is expected to grow by 50 percent in terms of the GDP, translating to $1.2 trillion in the next five years.
“Admittedly, there is a typical correlation between rising disposable income and life insurance, and this was true across the entire region.
The total premiums is expected to grow by more than 10 percent in the next five years,” he added.