The 58 underwriting companies operating in the nation’s insurance industry have attributed increasing multiple taxes they are subjected to by authorities as a setback that made them lose about N23 billion in the past and the current financial year.
In the 2016 financial year, insurers 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 N18.4 billion.
In the just concluded financial year, market observers expect underwriters to pay as much as N12 billion as taxes for the 2017 financial year, a picture that will become clearer by the time the remaining underwriters release their 2017 accounts.
Beside 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 companies, 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 struggling under the multiple taxation challenge.
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, 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 categorizing 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 of NIA, 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.
Maintaining that some of its members’ 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 time to amend by the National Assembly.