New reporting standard to eliminate tax burden on insurance premium
WEDNESDAY, 12 MAY 2010 01:20 MODESTUS ANAESORONYE
…NAICOM awaits NASB road map to unveil strategy
The adoption of International Financial Reporting Standard (IFRS) by the insurance industry will remove excess tax burden on premium income, analysts have said.
Huge tax on insurance companies, they said, has been a serious concern for players, which they believe is wrongly implemented as a result of ignorance on the part of those who enforce taxation. Operators believe a huge part of their premium income is drained by tax and this they said has contributed to their low contribution to GDP which is still less than one percent.
Industry experts have said that the Federal Inland Revenue Services (FIRS) would continue to do a disservice to the insurance industry until there is a clear differentiation on taxation between premium income and earned premium in the balance sheet of insurance companies.
While premium income in the business of insurance represents the total gross premium income from all insurance transactions, the earned premium represents a part of the total premium that has been received into the books of the company as cash at the end of that period.
In other words, the operators are taxed on incomes that have not been received into the books of the company as cash, which may eventually not come at all and could be written off as bad debt. National Insurance Commission (NAICOM), the market regulator, BusinessDay gathered is currently waiting on the Nigerian Accounting Standard Board (NASB) for a road map that would herald the implementation of the new reporting system.
Fola Daniel, commissioner for insurance, said once the green light comes from NASB, the commission will unveil its strategy for effective transition. The strategy, Daniel noted, would take into account the peculiarities of accounting for insurance especially as the main standard is yet to be issued.
Daniel said going forward the commission has set up an accounting practice committee that will attend to emerging and leading accounting issues as they affect the Nigerian insurance industry. Membership of the committee, he stated, is drawn from financial reporting chain including auditors, the stock Exchange and representatives of the insurance industry.
It is expected that this committee will proactively deal with accounting challenges and facilitate the proactive consideration of the peculiarities of the Nigerian insurance industry in the process of IFRS setting. The umbrella body of insurers, the Nigerian Insurers Association (NIA), had aligned with KPMG consulting to help make its position known to government. Its chairman, Wole Oshin, said if the law was not amended, the insurance sector would continue to groan under heavy burden of tax.
For Tola Mobolurin, group managing director, Crusader Insurance Group, the insurance industry would remain a fringe player in the financial services sector unless there is appropriate legislation to take away excess tax on its premium income.
Mobolurin charged the industry players to work hard and ensure that government listens to them otherwise it would remain a disservice on hard work.