The new Finance Act 2020, signed into law last month by President Muhammadu Buhari, eases the tax burden on the insurance industry, paving the way for more profitability for insurers.
The new law abolishes a special minimum tax on insurance companies. Insurers will also be allowed to carry forward tax losses indefinitely, and deduct the reserve for unexpired risks on a time apportionment basis.
The law in the past, among other things, imposed tax on premiums collected and placed a cap on expenses and claims payable by insurance companies. It also restricted the carrying forward of losses to four years, according to local media.
Furthermore, “taxable investment income” would now be limited to “income derived from the investment of shareholders’ funds”. This clarifies taxable income and limits it to income accruing to the insurance company as against income accruing to the insurance fund.
The National Insurance Commission (NAICOM) and Nigerian Insurers Association (NIA) had been appealing for years to the federal government to suspend or waive those sections of the law considered to be business unfriendly,
The new finance law has five strategic objectives. President Buhari said, “These objectives include promoting fiscal equity by mitigating instances of regressive taxation; reforming domestic tax laws to align them with global best practices; introducing tax incentives for investments in infrastructure and capital markets; supporting micro, small and medium-sized businesses in line with our ease of doing business reforms; and raising revenue for the government.”
Mr Fatai Adegbenro, the executive secretary of the Nigerian Council of Registered Insurance Brokers, lauded the new tax law as a positive development for the insurance industry because the money paid out on unnecessary taxes would now be injected into the operations of insurance companies.
Source: Middle East insurance review