ISLAMABAD: The SECP has proposed withdrawal of the one percent Federal Insurance Fee (FIF) applicable on non-life insurance premiums in the Budget 2022-23 to facilitate the insurance industry and insurance policyholders.
Sources told Business Recorder here on Saturday that the SECP has submitted budget proposals to the federal government for supporting the insurance industry.
According to the SECP’s budget proposals for 2022-23, Pakistan has one of the lowest insurance penetration in the region and therefore, SECP’s efforts are focused to promote the insurance industry in particular, low-ticket insurance products and personal lines of non-life insurance business to serve the poor and most vulnerable segment of society. The SECP believes that micro-insurance products can play an instrumental role in the development of the insurance market in Pakistan.
Through the Finance Act, of 1989, the FIF was levied by the federal government at the rate of one percent of the premium paid on all kinds of non-life insurance businesses. The industry is of the view that “at the time of announcement of Budget 1989-90 an understanding was given that this fee has been levied with the intention to spend the amount for developing insurance education in the country, for bringing awareness about insurance amongst the masses and providing infrastructure for prevention and minimizing of losses”.
However, the purpose for which the FIF was levied has not been fulfilled and the insurance sector has been bearing this additional cost of one percent for the last 30 years now without accruing any benefit to the insurance industry in Pakistan. Considering that insurance penetration in Pakistan is among the lower in the region, concentrated efforts are required by all stakeholders to increase the outreach of the insurance business and its awareness amongst the masses.
Under the proposal, the levy of FIF is in addition to Federal Excise Duty (FED)/Provincial Sales Tax (PST) and stamp duty applicable on the insurance business. All these duties and FIF combined makes the non-life insurance product costlier and unaffordable for the policyholders.
Earlier, the SECP had, through a letter dated April 05, 2019, placed before the Finance Division the proposal to withdraw FIF. In response, the Finance Division through a letter dated May 23, 2019, stated that the withdrawal of FIF would negatively impact the non-tax revenue of the federal government and considering the financial position of the country, it is not favourable to allow any shortfall in the non-tax revenue at this stage. Hence, SECP’s proposal of withdrawal of FIF is not supported.
In order to develop the insurance sector in Pakistan, increase insurance penetration, enhance financial inclusion and to provide cost-effective insurance solutions to the masses at large, it is proposed that the federal government may consider withdrawal of FIF applicable on non-life insurance premiums paid. Such withdrawal will facilitate the insurance industry and insurance policyholders and would also commensurate with the agenda of the Federal Government on ease of doing business, the SECP’s budget proposal added.
Copyright Business Recorder, 2022