THE PHILIPPINE INSURERS and Reinsurers Association, Inc. (PIRA) is pushing for lower documentary stamp taxes (DST) on nonlife insurance products to help lower costs.
The gradual reduction in the DST on nonlife insurance policies to 7.5% from 12.5% over five years was previously part of the proposed Passive Income and Financial Intermediary Taxation Act (PIFITA), and PIRA is pushing for its inclusion in the tweaked version of the bill now known as the Government Revenues Optimization through Wealth Tax Harmonization (GROWTH) Act, PIRA General Manager Rogelio J. Concepcion said at a media briefing last week.
“I attended two hearings last month and this month. It looks like that they are not submitting the PIFITA as a whole. They carved out certain provisions that they consider most urgent and beneficial probably to their government,” Mr. Concepcion said.
“What happened with PIFITA is they broke it down into little pieces. We’re watching now where our amendments are. We weren’t included in those. So, that’s what we’re doing. We’re monitoring where it is. If not, it’s back to square one,” PIRA Executive Director Michael L. Rellosa said.
The GROWTH bill covers both capital markets and financial intermediates, the Finance department previously said. It is the fourth package of the Comprehensive Tax Reform Program (CTRP) initiated in 2018 to bring about a more equitable and efficient tax system.
The measure seeks to “harmonize the taxation of passive income and financial intermediaries by reducing and simplifying the complicated tax rates on financial transactions.”
The DST is imposed on nonlife insurance products under the Tax Code. Rates depend on the instrument or transaction, as well as the amount of insurance. Some of these charges are passed on to policyholders.
Besides taxes on policies, nonlife insurers also need to pay other levies, Mr. Rellosa said, including value-added tax (VAT), local government tax, and fire service tax for fire coverage, among others.
These bring the combined taxes on nonlife products in the Philippines to around 25-27%, which is the highest in Southeast Asia, he noted.
This is also significantly higher than taxes on life insurance products, Malayan Insurance Co., Inc. Chief Operating Officer and PIRA Trustee Eden R. Tesoro said.
“In life insurance, it’s very straightforward. If an insured dies or makes a claim, then all they need to do is submit receipts and they’re done. For nonlife, we have adjusters. Adjusters charge you for their service as VAT,” she said.
“And remember, every time there is a massive event like [typhoons] Christine or Karina, every claim has a VAT, which the insurance company pays for.
That is why the insurance companies also charge VAT on the front end of the policy… So, if nonlife insurers absorb the VAT, and they also have to pay the claims, they will be at a loss. That’s not good for the industry because how this might end up is companies might close. It is not sustainable,” she added.
Mr. Rellosa acknowledged that the reduction in the DST on nonlife policies could result in foregone revenues for the government.
“That’s one of the reasons why we cannot just ask to lower the tax because we understand the government needs revenues as well.”
However, he said a study by the Philippine Tax Institute showed that revenues could remain unchanged even if taxes are lowered as the resulting reduction in the cost of policies could drive demand for nonlife insurance products.
According to an issue of the National Tax Research Center’s (NTRC) NTRC Tax Research Journal published in 2023, the reduction of the DST on nonlife insurance policies to 7.5% from 12.5% is expected to result in P29.3 billion in revenue losses for the government.
“However, it is important to highlight that the main purpose of [CTRP] Package 4 is to fix the tax system to deepen the capital market and encourage financial inclusion. Hence, it is only expected that the government will incur some losses, albeit insignificant if juxtaposed to the benefits it may bring to the Filipino people, the nonlife insurance industry, and the BIR (Bureau of Internal Revenue) in terms of higher tax compliance and simpler tax administration,” the NTRC said.
The combined net premiums written by nonlife insurers grew by 10.49% year on year to P71.84 billion in 2024, the latest Insurance Commission data showed. — A.M.C. Sy
