Insurance stakeholders urged to advocate for tax regime that supports growth and development of insurance sector

The Tax Reform Bill, currently under consideration at the National Assembly, has the potential to significantly impact the insurance industry.

Mr. Kunle Ahmed, current Chairman of the Nigerian Insurers’ Association made the remark while addressing a group of financial journalists in Lagos which included members of the insurance and pension journalists coming under the umbrella of the Nigeria Association of Insurance and Pension Editors.

During the occasion, he called upon industry stakeholders to continue to actively engage with the government during the legislative process to advocate for a tax regime that supports the growth and development of the insurance sector.

He also called for the recognition of insurance vital role in the economy by maintaining the VAT exemption on insurance premiums, ensuring a fair and competitive tax rate for insurance companies, considering tax incentives to promote insurance adoption, ensuring a smooth transition and providing sufficient time for compliance with any new tax regulations.

 Speaking on his expectation of the new tax bill, he said, ‘‘Although the bill is yet to be passed, my assessment is that any significant change to the tax laws will have multifaceted effects, encompassing both opportunities and challenges. It’s crucial to analyse the specific provisions of the bill to provide a more precise impact assessment, but based on general tax reform trends and potential areas of focus, here are my thoughts:

‘’If the tax reform leads to a reduction in the tax burden for individuals and businesses, it could result in increased disposable income. This could, in turn, make insurance products more affordable and increase the propensity of individuals and businesses to purchase coverage, leading to a higher insurance penetration rate.

‘’A well-designed tax reform can stimulate overall economic growth by encouraging investment, consumption, and business activity. A thriving economy would generally translate to a stronger insurance market, as businesses expand and individuals accumulate more assets to protect. If the bill aims to simplify the tax system and reduce compliance burdens, it could indirectly benefit insurance companies by lowering their administrative costs associated with tax compliance.

‘’A more transparent and efficient tax system, potentially resulting from the reform, could attract more foreign direct investment into Nigeria, including the insurance sector. This could bring in new capital, expertise, and innovation. If the reform addresses any existing tax loopholes or disparities that unfairly disadvantage insurance companies compared to other financial institutions, it could create a more level playing field and foster fairer competition.’’

Looking at the possible downside of the tax bill, Ahmed however explained that depending on the specific provisions, the tax reform could potentially increase the tax burden on insurance companies through changes in corporate income tax rates, treatment of insurance products like annuity, or other levies. This he said, could reduce their profitability and potentially impact their capacity for capital accumulation and investment.

According to him, ‘’Changes in the taxation of investment income earned by insurance companies (from investments made with policyholders’ funds) could impact their profitability and their ability to provide competitive returns to policyholders, particularly for life insurance and annuity products.

‘’The tax reform could have differential impacts on various insurance product lines. For example, changes in tax treatment of life insurance savings components or health insurance premiums could affect their attractiveness to consumers.

‘’While simplification is a potential goal, the implementation of a new tax system can initially lead to increased compliance costs for businesses, including insurance companies, as they adapt to new rules and procedures.

‘’The period leading up to and immediately following the implementation of a significant tax reform can create uncertainty in the market, potentially affecting investment decisions and business confidence within the insurance sector. Changes in tax laws could also affect our reinsurance arrangements, potentially increasing the cost of reinsurance for local insurers if cross-border transactions are impacted.’’

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