Tax policy not exemption is key for growth of insurance industry

Sunday March 05 2017
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Miriam Magala

In Daily Monitor of February, 19, Mr Kahinga Matsiko wrote an article titled “Developmental legislation, not tax exemption will grow insurance” and quoted me as rooting for tax exemption on insurance services which, according to him, are an essential catalyst to investment and therefore for economic development. Mr Matsiko further proposed that rather than tax exemption, our focus should be on developmental legislation- that is- deliberate legislation aimed at fostering economic transformation through select catalyst economic drivers such as insurance.
To the extent that developmental legislation will be critical to spurring the growth of the industry, I agree with Mr Matsiko and this is a position that we, as an industry, under the Uganda Insurers Association umbrella, are firmly lobbying for and taking it a step further by advocating for a more holistic approach to tax policy.

Insurance is the third most taxed sector in Uganda having to bear a Value Added Tax (VAT) of 18 per cent, Stamp duty (Shs35,000), With Holding Tax on reinsurance services (10 per cent), in addition to a training levy, with these taxes and levies being respectively applied between 2011 and 2014. Prior to the changes in tax policy, we were growing at an average of 18-20 per cent. Since then, we have grown at less than 15 per cent, an indication that the market, especially individual buyers, are not purchasing as much insurance. 2016 was a particularly testing year, and growth will be at less than 5 per cent. Since insurance is an extremely price sensitive service, the tax component- which in some cases is much higher than the actual premium- acts as a disincentive to the consumers. Were we to impose compulsory motor insurance as Mr Matsiko proposes, it is critical that the actual cost of the product and the willingness and ability of the market to purchase are taken into account.

We have, therefore, taken to proactively lobbying government to reassess the way tax and insurance interact with each other. The government response has so far been positive with the Stamp Duty on micro-insurance products being reduced from Shs 35,000 to Shs15,000. Micro insurance products are specifically designed to charge small premiums in order to make them available to a larger group of the population.
Whereas we appreciate this decrease in tax, we are advocating for this to be reduced further still to make individual targeted products and micro insurance products even more affordable. If say, for example, you have a personal accident insurance policy for which you pay Shs45,000, an estimated 51 per cent of what you pay will be tax which is slightly more than what you are paying to receive the actual service.

This nature of taxation is commonly used where government wishes to discourage the use or uptake of a product. A fairer balance would encourage more people to protect their wealth and quality of life through affordable insurance. We, therefore, continue to lobby for a further reduction of stamp duty from Shs15,000 to Shs5,000 for micro insurance products and other individual products .
In order to enhance sectoral growth and public benefit, we have also proposed the enforcement of social covers which are beneficial to the public and employees that is Motor Third Party Insurance and Workers Compensation respectively. In addition is the local retention of Marine Insurance premiums currently being earned by foreign insurance companies and fire and public liability cover for commercial and public buildings to protect businesses, government property and people that visit these buildings.

We will continue to engage government on measures we believe will be critical and for public benefit as well towards the growth of our industry and the economy as a whole.
In addition to this, consumer awareness and education remains the core of what we, as an association do. Our programmes have been specifically designed to address the needs of the public in terms of education and information on insurance products and services and the benefits of using the same.
We believe that by holistically looking at our products and services, how we deliver them as well as the environment in which we operate, we shall be able to meet the ever-changing needs of our clients in line with best industry practices.
Ms Magala is the Chief Executive Officer, Uganda Insurers Association. [email protected]