Order cuts taxes levied on insurance companies

MANILA, Philippines - Insurance companies are expected to pay lower taxes after the government reversed a previous order collecting higher fees. In amending a circular, the Bureau of Internal Revenue has allowed insurers to count labor costs, among other expenses, as tax-deductible items, thereby cutting their total taxable amounts. Revenue Memorandum Circular (RMC) 59-2008 was “issued to amend RMC 30-2008 with respect to the portions thereof which the industry feels need further refinement and clarification," BIR Commissioner Lilian B. Hefti said. The new circular allows wages and salaries; commissions on direct writings and reinsurance; cost of facilities directly utilized in providing insurance service such as depreciation or rental of equipment used and cost of supplies; medical and inspection fees; claims, losses, maturities and benefits net of reinsurance recoveries; additions required by law to their reserve funds; and reinsurance as part of deductible expenses. “Investment expenses should not form part of the direct cost nor a deductible expense in the determination of the net taxable income. However, investment expenses relating to investment income that has not been subjected to final tax, although do not form part of the direct cost, shall be allowed as deduction to arrive at the taxable income," Hefti said. Premiums on health and accident insurance pooled by a life or non-life insurance company are considered as premium on life insurance and are subject to a five percent premium tax, and not the 12 percent value added tax. On the other hand, re-issuance fees, reinstatement fees, renewal fees as well as penalties paid to the life insurance company are considered as income of the life insurance company for services rendered to customers and subject to 12 percent VAT or percentage tax. Hefti said the income earned by the life insurance company through funds solicited and pooled from policy holders and invested in various marketable securities, instruments, other financial products and in real estate is considered as income earned from performing quasi-banking activities or similar banking activities and should be subject to the gross receipts tax. Meanwhile, insurance policies such as compulsory third party liability policy for motor vehicles except health and accident would be subject to the P15 documentary stamp tax while group personal accident insurance would be subject to a P0.50 documentary stamp tax for every P200 amount of premium collected. The BIR decided to drop plans to impose documentary stamp tax on other financial services or products sold by life insurance companies since premiums on variable contracts are already subject to the same tax. - GMANews.TV