DoF seeks repeal of law exempting life insurance premiums from taxes

DoF seeks repeal of law exempting life insurance premiums from taxes

By CHINO S. LEYCO

November 23, 2010, 7:22pm

 MANILA, Philippines – The Department of Finance (DoF) is proposing to repeal the law that permanently exempts life insurance premium from all taxes.

In an obtained document, the DoF said the proposal aims to level the playing field among financial instruments since the provision will result in inequality as other similar financial instruments will continue to be taxable.

“The exemption of life insurance premium form tax is not pro-poor since it will deprive the government of revenues that can be spent on services that benefit most the poor, not to mention that insurance is consumed more by the middle to high-income earners,” the DoF said.

The agency estimated that the government will forego P1.34 billion in annual revenues for the initial year and will increase to a minimum of P2.2 billion every year once the exemption commences after five years.

Republic Act 10001 otherwise known as the “Act of Reducing the Taxes on Life Insurance Policies, Amending Section 123 and 183 of the National Internal Revenue Code of 1997” was signed into law by former President Arroyo last February.

The law reduced the premium tax from 5 percent to 2 percent and replaced the current DST rate pf P0.50 for every P200 of premium with fixed peso amount ranging from being exempt to P100 depending on the amount of insurance coverage per policy.

Also, the law exempts life insurance premium from all taxes after five-years of implementation.

The finance department had requested former President Arroyo to line veto the provision exempting the life insurance premium from all taxes after five years. Aside from life insurance premium exemption, the finance department is also proposing to amend the optional standard deduction (OSD) for corporation.

“We support the Bureau of Internal Revenue proposal, which was made by the BIR early this year, to reduce OSD for corporation from 40 percent of gross income to 10 percent,” the DoF said.

The DoF cited the OSD is intended to help the unsophisticated taxpayers, or small taxpayers who cannot hire tax accountants, in filing a return, adding it is not meant to be a tool to deliberately reduce the income tax due of a taxpayer.

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