High taxes hurting insurance sector growth, says official
Ms Miriam Magala, the chief executive officer Uganda Insurers Association
What you need to know:
- The insurance industry has already been struggling for years, especially in increasing access.
- According to Magala, prior to 2012/13, the sector was growing at about 18 – 20 per cent but this has since slowed down because of some of the tax measures.
Kampala. When the insurance sector chief executive officers met for an economic forum, they, among other things, wanted to discuss the 2017/18 Budget.
They had wanted to notify government officials to review the tax regime in the country that is burdening the growth of further penetration in the sector.
However, the government officials from the ministry of Finance that had been invited did not show up at the forum that took place at the Kampala Serena Hotel yesterday.
Slow growth
In 2016, the sector grew by a modest 4 per cent – slower than the country economic growth – on a combination of factors in the economy such as high-interest rates and a generally weak economic environment.
However, according to Ms Miriam Magala, the CEO of the Uganda Insurers Association, the level of taxation is also hurting their growth.
“Currently, the insurance sector is still being hurt by the tax regime in the country. The insurance sector just like the alcohol and telecom segments is highly taxed. However, the insurance sector unlike the other two is price sensitive and that makes it expensive for Ugandans to take on policies,” she said during the forum.
According to Magala, prior to 2012/13, the sector was growing at about 18 – 20 per cent but this has since slowed down because of some of the tax measures. The Insurance Regulatory Authority (IRA) estimates that insurance penetration in Uganda is about 0.8 per cent of GDP. It also sites one of the hindrances to the penetration as the expensive nature of selling insurance products.
The taxes of particular concerns are the increment in Stamp Duty from Shs5000 to Shs35,000, the 18 percent VAT charge on micro-insurance, withholding tax of 10 percent on reinsurance and the insurance revenue levy of 2 per cent.
“The policy on withholding tax on reinsurance is something we’ve had on very direct engagement, leveraging on all government policy papers whether it is the financial inclusion or growing capital markets. They way look at it is that it basically the wrong policy for our country and I hope and believe that they will be open to reversing that policy,” explained Mr Francis Kamulegeya, the country senior partner at PWC Uganda.
He, however, noted that it may too late for the government to review that policy in the next financial year 2017/18. This is because the government has already tabled the National Budget Framework Paper 2017/18 and in it, they point out there may be no new incentives in terms of taxes as the government seeks to increase revenue collections.
“The insurance sector should proactively engage the government to get rid of that because it just makes the sector very uncompetitive in the country,” he added.
The players also noted the taxation measures like Stamp Duty that was meant to authenticate documents was now being used a revenue collection measure.
Boosting access
Struggling. The insurance industry has already been struggling for years, especially in increasing access. According to Al-Hajj Kadunabbi Lubega, the CEO IRA, there has been growth since the reforms of 2012 that instituted better claims settlement. However, the industry continues to suffer several reputational challenges and apathy from the public.
