ISLAMABAD: The Competition Commission of Pakistan (CCP) has asked the Federal Board of Revenue (FBR) to remove sales tax anomalies within the insurance industry.
According to the CCCP report issued on Thursday, while the provincial sales tax on insurance premium is paid by the policy holder, the provincial sales tax on reinsurance premium is paid by the insurer. At the reinsurance stage, the same insurance premium collected by the insurer is subject to sales tax for procuring reinsurance services.
This creates a tax anomaly as sales tax is levied on already taxed premium. Further, sales tax is applicable on reinsurance even when exempted on life and health insurance and some general insurance. The taxation anomalies create a tax burden on the insurance industry at reinsurance stage, and increases the cost of doing business.
Govt eyes insurance sector to diversify lending sources: Aurangzeb
Section 94 of the Motor Vehicles Act, 1939 makes it obligatory for every motor coming on road in public place to have third party insurance. However, presently, only 3% of the motors are insured. The reasons being lack of awareness of the law, non-availability of a mechanism for verification of third-party insurance by the traffic police, lack of centralised database, and non-enforcement by relevant agencies.
In 1989, the Government of Pakistan imposed a Federal Insurance Fee of 1% on the premium of non-life insurance policies. The fee was to be used to raise awareness about insurance in the country. However, the fee has not been used for this purpose, and instead adds an extra cost for non-life insurers.
The preferential treatment granted to the SLIC should be abolished to ensure a level playing field for all market participants.
Currently, the market for public property insurance is entirely closed to private sector participation, and an amendment to the Insurance Ordinance, 2000 is proposed. This change would allow private insurers to compete with the NICL, leading to better market outcomes.
Amending Rule 18 of the Insurance Rules, 2017 would permit insurers to choose freely between domestic or foreign reinsurers, increasing competition and fostering market efficiency.
To improve bancassurance, the State Bank of Pakistan needs to issue appropriate guidelines to banks to prevent restrictive practices of dealing with the insurance companies.
Strict regulations be made by the State Bank of Pakistan (SBP) to ensure bancassurance carry genuine benefits for the customer, and misleading sales practices are not used to sell insurance, and the insurance terms & conditions are clearly laid before customer. In cases of disputes, mis-selling, or breach of agreement, it is further recommended that the jurisdictional conflict between the FIO and the Banking Ombudsman is resolved through better coordination and clear working boundaries.
To enhance insurance penetration, the study recommends enforcement of Motor Third Party insurance. The study emphasises the need to rationalise taxes and duties, the CCP added.
Copyright Business Recorder, 2025
Comments
Comments are closed for this article.