Bahamian insurers yesterday voiced relief that there is “light at the end of the tunnel” after the Government said it would drop plans to move the industry to a Business Licence fee taxation regime.
Anton Saunders, RoyalStar Assurance’s managing director, told Tribune Business that both sides have made “significant progress” in resolving concerns stemming from the May Budget announcement that the Davis administration planned to ditch the existing 3 percent premium tax in favour of a switching to a 2.25 percent Business Licence.
Following a recent meeting between the sector and Prime Minister Philip Davis and his officials, the Government has now decided to ditch the Business Licence move and retain the existing premium tax regime. However, it will now introduce a new levy on what is being termed “other income” earned by insurers.
Mr Saunders, who told this newspaper that the industry has “no issue with paying more taxes”, said it was now awaiting clarification from Simon Wilson, the Ministry of Finance’s financial secretary, on how the Government plans to define “other income” and what will be included in the base that determines the amount of taxation to be paid.
He added, though, that the key issue for the industry was to retain the existing premium tax regime as the switch to a Business Licence fee regime would have forced insurers “to change their business model”.
The RoyalStar chief told Tribune Business: “The industry met with the Prime Minster, and I think we have light at the end of the tunnel on the premium tax matter. We met with the Prime Minister and his team, and there’s been significant progress on the matter.
“At least the industry knows what they require. There are still some areas where we are working with the financial secretary on clarifying, but this matter I believe is substantially behind us. What’s to be clarified is that they’re going to keep the premium tax regime in place but they also want a tax on ‘other income’, so we just want a clarification on what they mean by ‘other income’.”
Mr Saunders said insurers wanted to know whether this definition included investment income and earnings from stocks, as well as realised and unrealised gains in the value of assets in their balance sheets. He added, though, that the key issue of retaining the premium tax structure had been settled after almost seven months of uncertainty, which he added could have been resolved much earlier if the two sides had met and talked to settle any differences.
“Hopefully we’ll get it done before year-end,” Mr Saunders said of the outstanding matters. “I think the key issue was the premium tax and not having to change the business model of insurance companies. Because the premium tax is staying it means the business model of companies does not have to change. We’ll have a back and forth with the financial secretary, and are confident we can resolve it in the interests of both parties.
“We’re happy that the Prime Minister stepped in and showed a lot of wisdom in the matter. All could have been resolved if we had sat down at the table with them a long, long time ago. None of us have any issue with paying more taxes; we’re all in the same boat. The issue was just clarifying what they mean so we all understand what is due to the Government.”
The 3 percent levy paid by consumers on all insurance policies was to be eliminated on July 1 this year as the Budget’s tax measures became law. But the absence of any implementation road map, together with a precise “definition” of what turnover means and a clear basis for calculating the new Business Licence fee, left the entire sector - both property and casualty, as well as life and health insurers - scrambling to adjust without possessing key details.
A critical issue was the definition of “turnover” that the Government planned to apply for the purpose of calculating the Business Licence fees payable by the sector. Underwriters, in particular, were seeking clarity as to whether “gross written premium” or “net premium earned”, the latter of which strips out the sums ceded to reinsurers, was to be used as the basis for the calculation or even “net underwriting income”.
The resulting uncertainty made it impossible for the industry to plan or properly advise partners such as reinsurers. Mr Saunders said previously that while Tribune Business’ copy of the Business Licence (Amendment) Bill showed insurers as having to pay a fee equivalent to 2.25 percent of annual turnover, the draft he possesses shows that as being 2 percent.
The Royal Star chief, meanwhile, said there had also been progress in resolving tax concerns specific to health insurers. These centre on the VAT treatment of private medical claims, with the Government seeking to bring this into line with what it argues is standard global practice.
This would result in consumers paying the 10 percent VAT on private health insurance claims payouts, rather than the tax being treated as an ‘input’ deduction and offset against the insurer’s output VAT.
With the industry no longer able to treat medical bill VAT as an ‘input’ deduction, it has warned that consumers will “ultimately” pay the price through having to absorb the levy on their patient care expenses - something that will effectively increase health treatment costs by 10 percent at a time when Bahamians are grappling with soaring inflation and the continuing fall-out from the ongoing COVID-pandemic.
However, Mr Saunders said: “The Government and health insurers are working on a transition on how to deal with that matter.”
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