Insurers have expressed their concerns over the new VAT rate that becomes effective this month, February, 2020.
Before now, insurers bore the five per cent Value Added Tax (VAT) for brokers on every commission they earned. The insurers pay the VAT to the Federal Inland Revenue Service (FIRS).
Although the premium received from brokered business for insurers is not vatable, the commission earned by brokers is.
But with the increase of VAT rate at 7.5 per cent from five per cent based on the new Finance Bill, insurers’ burden has risen.
This is coming at a time insurers are grappling with how to meet up with the new minimum capital required to recapitalise before next December 31, as ordered by the National Insurance Commission (NAICOM).
NAICOM, on May 20, last year, mandated the 58 insurance firms and two reinsurance firms in the country to increase their paid-up share capital. The minimum paid-up share capital of a Life insurance company was raised from N2 billion to N8 billion; Non-Life insurance from N3 billion to N10 billion and Composite insurance from N5 billion to N18 billion. Re-insurance companies were directed to raise their capital base from N10 billion to N20 billion.
While the operators are thankful to the Federal Government for relieving the industry of a 12-year tax burden in the former Income Tax Act, they are not too happy with the increase of the VAT from five per cent to 7.5 per cent.
The new VAT rate is another aspect of the new Finance Bill that has become contentious for them.
The Managing Director, Anchor Insurance Limited, Ebose Augustine, said the brokers’ commission will now be vatable for 7.5 per cent, which will increase their expenses.
“Also, any money the brokers earn has to leave the industry and go back to the government. Our overheads and other expense will increase. We are not against this because we will not say money should not go to the government. We are not anti-people.
“But we are asking the government to practise what they preach by making deliberate plan to help the industry by enforcing the compulsory insurance. When the BVN was introduced, many people didn’t take it seriously until the government gave a deadline, saying accounts of those who fail to the necessary things will be forfeited. This helped government to recover a lot of looted funds. So, why will people not take insurance? Why will insurance be a sub sector? We want government to help make the industry grow.”
The Executive Secretary, Nigerian Council of Registered Insurance Brokers, Fatai Adegbenro, said the tax review is a good development for insurance industry as the amounts incurred on the unnecessary taxes would now be injected into the operations of the insurance companies.
He, however, affirmed that the VAT paid by insurers on behalf of brokers will rise as a result of the new rate.
But he pointed out that the increase was still below what is paid in the United Kingdom and United States.
“There has been an agreement between the insurers and brokers on payment of VAT to pay the tax on behalf of brokers. They bear the cost so they may complain that the increase is not good for them,’’ he said.