Companies world over are expected to pay tax for each year of assessment on its profit accruing in, derived from, brought into or received in the company’s jurisdiction in respect of all kind of income. This income may be derived from a trade, business or investment. Insurance companies in Nigeria, as respected business entity are expected to contribute to the growth and sustainable development of the Country by paying all applicable taxes.
Recall that in September 2000, the then attorney general of the federation and minister of justice Chief Bola Ige (SAN) of blessed memory, constituted a Law Revision Committee to prepare a revised edition of the Laws of the Federation up to ...view middle of the document...
In most developed countries, Insurance companies are typically the biggest investors in infrastructural development projects. This naturally translates into a ready source of long term stability, financial security and growth of our dear Country.
In a study by Arena Marco in 2008 on whether insurance market activity promotes economic growth, he discovered that there is a “robust evidence of a causal relationship of insurance market activity on economic growth. Both life and nonlife insurance premiums have a positive and significant effect on economic growth”. This tend to confirm that our industry has enormous potential to redefine our economy
The potentials of the industry in Nigeria cannot be over-emphasized; you will agree with us that Nigeria, with a population of over 160million has an insurance density of about 5-12% which is a far cry of 40-50% in some developing nations and almost 90-98% in developed countries. According to the 2006 Sigma Report, “the life sector alone in South Africa raked in $33.1bn while Nigeria earned a paltry $112m within the same period."
Recently, with concerted effort of our regulator – NAICOM and Nigeria Insurance industry stakeholders coupled with the introduction of the local content act 2010, the insurance business in Nigeria has witness an unprecedented growth.
The future outlook and potential of the Nigeria markets presented a persuasive case for foreign players entrance into the market. For instance, Old mutual acquired Oceanic Life, NSIA invested in ADIC insurance while Sanlam acquired a minority stake in FBN Life. In fact, there are strong indications that more foreign interest may enter into the market.
With sound economic, favorable legal and political environments, the Nigeria Industry can thrive on a fertile ground for robust insurance markets. The provisions of the Companies Income Tax (Amendment) Act 2007 as it affects the Insurance sector may threaten the fertile ground for the industry to grow.
The Companies Income Tax
Certain provisions of the Companies Income Tax (Amendment) Act 2007 are not favorable to the Insurance companies, continued implementation of these provision may eventual lead to the collapse of the entire industry as it imposes huge tax burden on insurance companies to the extent that the premium income being paid by to arrange insurance contract is taxed.
Section 14 of the act requires an insurance company other than a life insurance company shall be allowed as deductions from its premium the following reserves for tax purposes-
“(a) for unexpired risks, 45 per cent. of the total premium, in case of general insurance business other than marine insurance business and 25 per cent of the total premium in the case of marine cargo insurance;
(b) for other reserves, claims and outgoings of the company an amount equal to 25 per cent of the total premium, so that, after allowance under the Second Schedule to this Act as may be restricted, has been allowed for in any year of...