For their five-year operation, about 55 life and non-life insurance companies in Nigeria have paid N36.5 billion taxes to the federal government through the Federal Inland Revenue Service (FIRS).
LEADERSHIP findings revealed that the taxes were paid by the companies between 2013 and 2017 financial year end. The underwriters generated N100.4 billion as Profit Before Tax (PBT) and were left with Profit After Tax (PAT) of N63.9 billion, having paid N36.5 billion as taxes to the government.
The tax paid translates to about 35 per cent of the profit made within the period by the firms.
The data sourced from the Nigerian Insurers Association (NIA) by LEADERSHIP showed that insurance firms made N9.8 billion as PBT which was reduced to N4.9 billion PAT, having paid N4.8 billion as tax in 2013 financial year, while the insurance industry recorded N6.3 billion as PBT in 2014, which went into a negative of -N691 million, after operators paid about N7 billion as tax.
In 2015, insurers made N11.3 billion profit, while the profit reduced to N6.1 billion, having paid N5.2 billion as tax in that financial year.
in the 2016 financial year, insurance companies paid N11 billion as taxes from a PBT of N29.4 billion declared and were left with PAT of N18.3 billion, even as insurers made a profit before tax of N43.8 billion in 2017 financial year and paid N8.3 billion tax to the federal government, This left them with profit after tax of N35.5 billion.
Although, the tax paid to government by insurance companies in 2018 are still sketchy, as underwriting firms are just releasing their accounts, there are indications that it could rise above N10 billion as the government intensifies efforts to generate more revenue locally to finance the 2019 budget.
Apart from paying taxes on management expenses, short-term lending, among others, insurers were also mandated to pay tax on claims, which is the core business of underwriting, meaning that, the higher the claims paid by an underwriter, the higher the tax accruing to the government.
The federal, state and local governments have embarked on aggressive revenue generation, picking on corporate bodies where insurance firms are among the major source of revenue.
The enforcement of these taxes heightened last year with some insurance companies shut down by the FIRS until they cleared their tax arrears.
While the situation has negative implications on the books of some struggling insurers, others have their meagre profit cut by these taxes, while the big underwriters were not exempted from the impact of these taxes.
During the tenure of its former chairman, Mr. Eddie Efekoha, the NIA had complained that the industry was being subjected to multiple taxes that were gradually eroding the profits of insurance companies, thereby, affecting their ability to give good returns on investment to their shareholders as well as stakeholders.
Efekoha, however, believes the permanent solution lies in amending the tax code which however takes times to do, noting that it has to be done through the National Assembly.
“’Giving returns on investment to shareholders and stakeholders has a lot to do with how much you make as profit but in a scenario like ours, where we are subjected to multiple taxation, it becomes difficult to pay dividends to shareholders. The more tax we pay, the more the returns to our stakeholders diminish. If you are to pay tax on claims and on management expenses, what this means is that you have little or nothing left to pay dividends to shareholders,” he lamented.
However, there is an ongoing discussion between NIA and FIRS to address this challenge.
Also last year, the general manager, Retail Life, AIICO Insurance Plc, Mr. Sola Ajayi, said that the tax code in Nigeria was too hard on both life and non-life insurance companies as they were not allowed to take advantage of deferred tax, especially, for life business.
“We cannot take advantage of those taxed assets because of Section 33 and Section 16 of the tax code. Section 33 stipulate that, we must pay minimum tax, while Section 16 provides that even when you have a tax exempt income, you must still come back and pay something. So, you cannot exempt paying tax on the life business where some are even incurring losses and you cannot fully take advantage of all your reliefs,” he said.
For non-life business, he said that the tax code does not recognise the whole claims paid as expense, noting that no matter the claims paid, the company can only 25 per cent relief.
We’re Mindful Of Nigeria’s Rising Debt – FG
Meanwhile, the minister of Finance, Zainab Ahmed, has said that while the federal government borrows to deliver on its promises, it is also mindful of the rising debt burden, which eats up about 25 per cent of the country’s annual earnings.
Mrs. Ahmed stated this in an interview with the News Agency of Nigeria (NAN) on the side-line of the just-concluded IMF/World Bank meetings in Washington DC.
Nigeria currently has an external debt stock of about $24.27 billion as of December 31, 2018.
Euro bonds, loans from World Bank Group, China and Africa Development Bank Group make up over 80 per cent of the country’s debt stock.
The minister insisted that in spite of the warnings by the International Monetary Fund (IMF) and the World Bank, the country was far from a debt crisis.
“The World Bank and IMF are cautioning us on the rate at which we are borrowing. They are also cautioning us on the need to build fiscal buffers because the global economy is going to be facing some risks and we agree with that.
“We are very mindful of the level of our borrowing. Our borrowing is very much within fiscal limits right now. What we are doing is to increase our revenue-generating capacity to make it easier for us to meet our debt obligations and our routine as well as capital expenditure,’’ she said.
“We make sure we get the best possible terms and whether we are borrowing from financial institutions or in Europe or China or anywhere else, we try to get the best rates of borrowing.
“So far, the conditions we’ve got are very good ones,’’ she said.
Mrs Ahmed restated the commitment of the President Muhammadu Buhari administration to ensure that the country grows in a manner that will bring many people out of poverty.
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