KARACHI: The insurance industry wants the removal of double taxation to ease administrative and financial burdens on the sector. It wants taxation on insurance to fall under federal jurisdiction to ensure uniformity and prevent double taxation on a provincial level.
In an interview with Business Recorder on Wednesday, Chairman Insurance Association of Pakistan (IAP) Shoaib Javed Hussain said IAP has sent budget recommendations to the Federal Board of Revenue and the Ministry of Finance on rationalization of insurance taxations.
Hussain was firm in saying that the elimination of overlapping tax jurisdictions between the federal government and provincial authorities would help in reducing compliance costs and operational friction, thus benefitting policyholders.
“A consistent tax framework is essential for scale integration across provinces and the development of a cohesive national financial architecture”, Hussain, who is also CEO of State Life Insurance Corporation (SLIC), said.
Insurance penetration needs to be boosted: Hussain
In FY2023, Hussain said, the insurance sector in Pakistan generated over Rs613 billion in gross premiums, with life insurance accounting for approximately 66% of this share. Despite its potential, insurance penetration remains below 1% of GDP, significantly lower than regional peers like India (4%), China (3.9%) and Sri Lanka (1.2%), indicating untapped growth potential.
The world average is 6.7%, meaning that there is potential for the industry to grow 800% just to achieve this average. A focus on industry growth can significantly increase its contributions to the country’s tax collections and economic prosperity over the medium term.
There is a need to further incentivize the purchase of insurance through continued income tax credits and the removal of provincial sales tax, Hussain said, for which he proposed reinstating tax credits on life, health, and microinsurance premiums.
“Tax credits would nurture a culture of savings and provide meaningful relief to the salaried class, which bears a significant share of the nation’s tax burden while striving to care for their loved ones,” he said, adding that such incentives would help promote insurance adoption in the country.
He also said tax credits should be viewed as a vital tool for savings and investment for the public, in addition to supporting the financial inclusion goals of the Government of Pakistan.
He further added that taxation of insurance premiums, be it in the form of provincial sales tax or federal turnover tax, is additional direct taxation on individuals aiming to save for significant milestones in life or for protection against unforeseen adverse life events.
There is a need to further incentivize the purchase of insurance through the removal of taxes on premiums, he believes, especially as taxation of life insurance companies is governed under the Fourth Schedule and turnover tax should not be applicable.
Insurance is a risk management tool and not a source of income, and taxing premiums will discourage businesses and individuals from investing in risk mitigation, he said.
Premiums collected by life insurers are contingent liabilities used to settle future claims — not operational revenue — and are already subject to taxation when annual surpluses are allocated to shareholders, he added.
Capital Market Taxation
Another proposal IAP wants incorporated in the forthcoming country’s financial plan 2025-26 is the rationalization of Capital Market Taxation. The insurance sector is requesting a revision to the current tax treatment of capital gains and dividend income to better reflect the unique nature of the industry — rather than applying the same rules used for banks and financial institutions.
Chairman IAP elaborated that the legislator’s view of treating the insurance and banking sectors similarly is not appropriate. Insurance companies cover the risk of loss of the insured for a nominal premium. To manage this risk, they must diversify the deployment of their assets into various categories of investment avenues, each with different risk appetites.
The IAP chairman has called for the withdrawal of Rule 6B of the Fourth Schedule, introduced through the Finance Act, 2016. This rule groups capital gains and dividend income as a single taxable source for insurance companies, a provision that the industry argues has negatively affected the income of both life and non-life insurance companies.
Hussain was confident that standardizing this treatment would restore neutrality and enhance capital market depth.
He noted that many countries exclude insurance from VAT and similar taxes, recognizing its unique financial structure. Aligning with such global best practices would promote financial inclusion, enhance insurance penetration, and support sectoral growth in Pakistan.
Chairman IAP remarked that the industry fully recognises its responsibility towards financial and economic stability of the country and supporting the government’s initiatives in achieving these goals.
He said that the insurance industry can play a vital role towards the country’s economic growth and prosperity by being a key contributor to capital markets, infrastructure projects and provide social protection to the most vulnerable of society.
He concluded by saying that IAP has also discussed these budgetary proposals with the regulator – the Securities and Exchange Commission of Pakistan – which has supported them, recognizing the value of the insurance sector in contributing to the national economy.
Introduction:
Shoaib Javed Hussain is CEO of the State Life Insurance Corporation (SLIC) of Pakistan.
He holds an MSc degree in actuarial management from Cass (now Bayes) Business School, City University London and is a Fellow of the Institute of Actuaries, UK. He began his career at an actuarial consultancy in Pakistan.
He has over two decades of management experience at global insurance groups and consultancies in the UK and Asia. Before joining SLIC, he held senior leadership and management position with a Hong Kong multinational insurance and finance corporation called AIA Group Limited.
Currently, he is also serving as Chairman Insurance Association of Pakistan (IAP).
