ADJUSTING the value-added tax (VAT) upward would hit hardest insurance companies, the Insurance Commission chief said, noting the incoming administration’s finance officials should tread slowly on tweaking the tax structure.
Insurance Commissioner Emmanuel F. Dooc said during the BusinessMirror Coffee Club forum on Tuesday that measures for tax reform should be subject to further thorough review before they are implemented or undertaken by the administration of President-elect Rodrigo R. Duterte, as the nonlife insurance industry would suffer a direct hit.
And to help the insurance sector, Dooc said the government should remove the VAT imposed on insurers and revert to the imposition of premium tax.
The Department of Finance (DOF) has prepared a comprehensive tax-reform study proposing an increase from the current 12-percent VAT to 14 percent. Dooc said the increase will hit the insurance industry hard because the 12-percent VAT excludes taxes on document stamp tax (DST), fire tax and local government taxes.
“The major issues there [proposal] is one, reduction or lowering of the income-tax rate both to the individual and the corporate,” Dooc said, adding that the proposal is to cut the rate from 30 percent or 32 percent to 25 percent.
“But to compensate for the loss in the income tax, they mentioned increasing the VAT. So if you add up the DST, the VAT, the fire tax, the local government tax, a nonlife [insurance firm] will be paying 28.5 percent plus local government tax every year,” Dooc said.
He noted that only the nonlife segment is subject to tax burdens, totaling to as high as 27.5 percent.
“What business is exposed to such onerous tax burden? Only the nonlife. If you add up the commission cost, the overhead expenses and others, what will be your margin of profit?” Dooc said. “Unless, of course, you make a profit out of your investment. But who is making profit from investment? Ano pa ba ang kikitain mo sa bank deposits mo, there is none.”
Dooc said he is aware incoming Finance Secretary Dominguez is wary of the DOF proposal for a VAT increase.
“Secretary-designate Dominguez expressed his displeasure during these past few days,” Dooc said. “Ang sabi niya he does not favor increasing the VAT, he wants to just skip it. But he is in favor of lowering both corporate and individual income tax.”
He added he plans to ask the 17th Congress to pass a proposed bill to reduce VAT for the nonlife industry. Dooc noted that compared to other Asian countries, the Philippines remained the country with the highest taxes imposed on non-life insurance products. He said Singapore offers a low 8 percent.
Dooc further explained that with the removal of the VAT, the industry will then go back to premium tax to help in decreasing the high burden coming from the payment of taxes.
“My idea, and I hope the industry supports it, is to remove the VAT and we go back to premium tax. Because the life [insurance sector] pays premium tax at 2 percent, compare that to VAT at 12 percent,” Dooc explained. “Because the VAT generally applies to all services, so hindi pwede na iba ang VAT sa insurance. Kahit na ibaba mo ’yan sa 10 percent, 10 percent lahat ’yan. Pero kung sa premium mo ibabatay, bababa sa 2 percent, that’s very helpful and it will incentivize the nonlife.”
The proposed bill for the lowering of taxes for the nonlife industry remained pending in the recently adjourned 16th Congress.
Image credits: Nonie Reyes