Банкеръ Weekly



Insurers are preparing changes in the forms for all-risk insurance policies. It is necessitated by the new way of taxation in the branch as of January 1, 2004. The indirect tax, to be charged on certain insurances as of next year, will figure on a separte line after the price of the insurance.The so far charged tax on premiums has been eliminated and superceded by an indirect tax. Together with it the companies' profit will be taxed as per the provisions of the Corporate Income Taxation Act. Within a few days Parliament is expected to conclusively approve the amount of the indirect tax. The draft bill for amendments to the Corporate Income Taxation Act stipulates that life insurance and reinsurance should not be taxed, as the practice in developed countries is. The indirect tax will be charged on all-risk insurances. The Finance Ministry's bill does not practically stipulate taxation of aviation and marine insurances (a 0% rate). For all other insurances the tax will be 3 per cent. But one of the Finance Ministry intermediate drafts stipulated 1% tax on the proceeds from aviation and marine insurances and 2.3% on all others. The final decision is to be made by the deputies in Parliament. Insurers worry that at a 3% tax rate it would be more difficult for them to cut down their tariffs in order to maintain the price of the policies unchanged or affordable for the client. People in the branch are also considering the possible psychological effect of the fact that in the new forms for policies the customers will see the indirect tax separately entered as an addition to the premium and may regard is as a surplus charge. All proceeds from policies, received by December 31, 2003, will be taxed as per the currently efficient rules, i.e. a tax will be charged on the premium proceeds. But if the insurance is valid for next year as well and a rescheduled payment of premiums has been negotiated (part of them payable in 2003 and another in 2004) the insurers should keep the amount of the remaining installments due in 2004, but the new tax will be charged on them. For example, if an insurance costs BGN100 and and half of it is due in 2004, the insurer will report for himself proceeds of BGN48.54 and should remit on behalf of the insured person BGN1.46 (3%) to the budget. The new tax will be charged on all premiums on insurances closed after January 1, 2004.According to the Association of Bulgarian Insurers, if the new tax rate is 2.5% (and not 3%), the insurance premium paid by the client won't go up and the price of policy will be insignificantly hiked. However, there is no rule for the reduction of tariffs. They will depend on the evaluation of the risk and on the actuaries' calculations. Quite naturally, competition between the insurers will also play a part, forcing them to cut down the price of policies despite the new tax. Otherwise, they face a danger of losing their clients.

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