No tax required to be withheld against payments representing discounts, inter-company account settlements

LAHORE: No tax is required to be withheld against the payments representing discounts and inter-company account settlement, said sources.

However, as pointed out by some tax practitioners, the assessing officers of the tax department create tax liability on a defective understanding that deduction was required even payments were made through book adjustments to co-insurers/parties under an insurance agreement.

Normally, they said, insurance services are provided by a number of insurance companies jointly by creating a consortium under an agreement to the client/insured.

The premium is collected from the insured by the lead insurer and allocated among the insurance companies proportionate to their undertaking of the risk.

According to the sources, it is the duty of the lead insurer company to ensure the discharge of deduction of advance tax against the payments made to the commission agent.

Insurance premium is received in full by the lead insurer and the rest is distributed among the co-insurer on the basis of their agreed shares after payment of taxes/deductions on the entire amount.

They added that the co-insurers and their shares of risk are decided through agreement. The co-insurance agreement is only in the nature of general regulation for sharing the risk and premium involved in an insurance policy and the entire insurance premium as well as payment to commission agent has already suffered tax at the time of its receipt/payment at the hands of the lead insurer.

If there is any non-deduction on the payment made to agent, the lead insurer may be inquired but not the co-insurers who have not made any payment directly to the commission agents, the sources stressed.

At the maximum, said the sources, the tax department can verify the factum of payment of withholding tax by the lead/co-insurers on the disputed transactions and in case any non-deduction is found, proceedings should be initiated against the lead insurers in accordance with law.

They further said that the insurance companies should cooperate on this account by providing all the necessary details regarding payment, lead insurers and transactions.

Copyright Business Recorder, 2023