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THE Department of Finance ordered the suspension of a Bureau of
Internal Revenue (BIR) circular imposing new taxes on insurance
companies after receiving several complaints from industry players.
“I’m suspending it until we talk to the
sector,” Finance Undersecretary Gil Beltran told reporters.
The BIR issued last month a circular that
expands the scope of the 5-percent premium tax and the documentary
stamp tax (DST), as well as reduces the scope of the minimum
corporate income tax, among others.
The Philippine Life Insurance Association (PLIA)
and the Philippine Insurers and Reinsurers Association (PIRA) have
been lobbying for a recall of the BIR circular.
Insurers said the proposed revenue memorandum
circular violates the country’s Internal Revenue Code and would
result in “double taxation” on certain insurance products.
Companies said the circular’s biggest flaw is
its imposition of a P15-DST on certain insurance products such as
the compulsory third-party liability (CTPL) insurance for motor
vehicles.
Honorio Ramajo, PIRA chairman said the new DST
would only make insurance more expensive for Filipinos who are in
need of protection.
Other insurance products covered by the new DST
include group and personal accident insurance as well as marine
cargo insurance.
PIRA also questioned the BIR’s new policy
limiting the scope of the so-called cost of service, which involves
the items that may be deducted from an insurance company’s income
before taxes are computed.
The new BIR circular limits the cost of service
to claims, losses, maturities and benefits and excludes salaries,
employee benefits, cost of facilities and supplies and other
expenses incurred in running the business.
“The particular provision clearly violates
Section 27E of the Tax Code,” Ramajo said. “As a general rule,
provisions of regulatory issuances cannot amend provisions of a
law.”
Another flaw of the proposed circular is its
“double standard” in taxing gross receipts of insurance
companies, PIRA said.
For health and accident insurance offered by
non-life companies, gross receipts are subject to the 12-percent
expanded value added tax (VAT) while the same products when offered
by life insurance companies would only be charged a 5-percent
premium tax.
“This violates the equal protection clause of
the Constitution as there appears to be no reasonable basis why
non-life insurance companies engaged in accident and health
insurance contracts and their clients are being discriminated
against,” Ramajo said.
The PIRA official said that since VAT is
eventually passed onto customers, accident and health insurance
products of non-life companies become more expensive and less
attractive compared with similar products offered by life insurance
firms.
“As a rule, taxes or levies should be applied
uniformly on the basis of the nature of the transaction being taxed
alone, regardless of the persons or entities involved,” Ramajo
said.
Lastly, PIRA is against the new policy that DST
would apply even in cases wherein the insurance policy had become
ineffective due to non-payment of premiums.
Ramajo said the policy requiring DST on aborted
transactions violates earlier BIR rulings granting capital gain tax
refunds where sale agreements are rescinded.
PIRA has been protesting the over taxation of
the industry, which it blames for its slow growth.
-- Chino S. Leyco
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