Tax Break Ends for Life Insurance

EghtesadOnline: Life insurance henceforth will not be tax exempt, the head of Iran National Tax Administration told reporters following a meeting with Iranian Insurers Syndicate.

News ID: ۷۴۹۰۸۴

02 December 2019

"Today I had the opportunity to find out more about the challenges the insurance sector is grappling with. It needs mention that the domestic system also has its own challenges. Everyone in the country is looking for a tax break," Risknews.ir quoted Omid Ali Parsa as saying on Sunday.

The meeting was held following the release of a draft of a tax reform plan last week in which life insurance policies have been omitted from the list of businesses exempt from paying tax.

Insurers claim that without being exempt from tax, they cannot meet targets envisioned in the Sixth Five-Year Economic Development Plan (2017-22(. The long-term plan stipulates that the insurance industry should reach a penetration rate of 7% by 2022, Financial Tribune reported.

The share of life insurance is also planned to reach at least 50% of the industry’s total premium. Life insurance currently accounts for about 14.5% of the premiums.

With regard to life insurance penetration, Iran ranked 5th in the region in 2016 (for 5 consecutive years) and 52nd in the world.

"Proposed reforms are currently being studied by lawmakers," says Mohammad Karimi, secretary general of IIS. The Majlis has “required us to increase insurance penetration rate and this is impossible without tax breaks."

The penetration rate reached 2.38% at the end of the last fiscal year in March 2019.

Insurance companies generated 66 trillion rials ($584 million) from life policies they sold in the last fiscal year, indicating 42.3% increase compared to the year before.

But growth in premium income in the life insurance category seems to be linked more to higher prices of policies. The income was generated from 2.12 million life insurance policies, which surprisingly is 11.5% lower than the total life insurance policies sold the year before.

Tax Revenue

The government generated 1,090 trillion rials ($8.8 billion) in taxes in the last fiscal year. In the budget for the current fiscal year that ends next March 1,400 trillion rials ($12. 5 billion) has been projected in tax revenue.

Given the budgetary constraints, increase in tax revenues is seen as critical for plugging the government’s ballooning budget deficit.

National revenues have been hit hard after the US imposed new economic sanctions and further tightened restrictions on Iran’s oil exports – the lifeline of its economy.

Parsa earlier announced plans to modernize the tax system by using verifiable information about the financial turnover and status of taxpayers.

Apart from the need to compensate for budgetary constraints, tax revenues help the government curb dependence on oil exports to meet targets enshrined in the 'Resistance Economy' proposed by the Leader Ayatollah Seyyed Ali Khamenei.

One important component of the long-term vision is to significantly raise income tax.