Budget 2022-23: the SECP proposes the withdrawal of 1pc FIF on non-life insurance premiums

ISLAMABAD: The SECP has proposed the removal of the 1% Federal Insurance Tax (FIF) applicable on non-life insurance premiums in the 2022-23 budget to facilitate the insurance industry and policyholders.

Sources told Business Recorder here on Saturday that the SECP has submitted budget proposals to the federal government to support the insurance industry.

According to the SECP budget proposals for 2022-23, Pakistan has one of the lowest insurance penetrations in the region and hence the efforts of the SECP are focused on promoting the insurance industry, in particular low-cost insurance products and personal lines of non-life insurance. enterprise serving the poor and most vulnerable segments of society. The SECP believes that microinsurance products can play a key role in the development of the insurance market in Pakistan.

Through the Finance Act of 1989, the FIF was levied by the federal government at the rate of 1% of the premium paid on all types of non-life insurance. The industry is of the view that “at the time of the announcement of the 1989-90 budget, it was understood that these charges had been levied with the intention of spending the amount to develop insurance education in the country, to raise awareness about insurance. masses and provide infrastructure for the prevention and minimization of losses”.

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However, the purpose for which the FIF was levied has not been achieved and the insurance industry has been bearing this extra one percent cost for 30 years without benefiting the insurance industry in Pakistan. Considering that insurance penetration in Pakistan is among the lowest in the region, concentrated efforts are needed from all stakeholders to increase the reach of insurance business and its awareness among the masses.

Under the proposal, the FIF levy is in addition to federal excise duty (FED)/provincial sales tax (PST) and stamp duty applicable on insurance business. All of these fees and FIFs combined make the non-life insurance product more expensive and unaffordable for policyholders.

Previously, the SECP had, by letter dated April 5, 2019, filed with the Finance Department the proposal to withdraw from the FIF. In response, the Finance Division, by letter dated May 23, 2019, stated that the withdrawal of the FIF would have a negative impact on the federal government’s non-tax revenues and given the country’s fiscal situation, it is not unfavorable to allow any shortfall. in non-tax revenue at this stage. Therefore, SECP’s proposal to withdraw the FIF is not supported.

In order to develop the insurance industry in Pakistan, increase insurance penetration, improve financial inclusion and provide cost-effective insurance solutions to the general public, it is proposed that the federal government consider the withdrawal of the FIF applicable to non-life insurance premiums. paid. Such a withdrawal will facilitate the insurance industry and policyholders and would also be commensurate with the federal government’s program on the ease of doing business, the SECP budget proposal added.

Copyright Business Recorder, 2022

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