Higher Tax on Third-Party Car Insurance From March

EghtesadOnline: Insurance companies are required to collect 5 trillion rials ($16.6 million) from third-party auto insurance policies in the next fiscal year.

News ID: ۷۸۷۴۱۷

13 December 2021

As per the 2022-23 draft budget sent to the Majlis on Saturday, the Central Insurance company of Iran will decide the share of each insurance company based on their portfolio. The money will have to be paid to the treasury on a monthly basis, Risknews website reported.

This tax revenue will then be paid to the Ministry of Roads and Urban Development, Emergency Medical Services, Law Enforcement Forces, Iranian Red Crescent Society and the Islamic Republic of Iran Broadcasting. The website said the tax revenue will be used for reducing car accidents and promoting safe driving.

This is the first time the state broadcaster (IRIB) and IRCS are included in the list for such payments.

Third-party vehicle insurance is mandatory in Iran and car owners lacking this type of policy are penalized.

It is essentially a form of liability insurance according to which, in the case of road mishap, the insurer is required to compensate the inflicted party for the physical or financial loss according to the reimbursement ceiling set by the High Council of Insurance, affiliated to the CII.

Third-party auto insurance accounted for the largest portion of premium income in the first seven months of the current fiscal year (started March 2021) -- 213.4 trillion rials ($743.5 million) or 35.4% of the total  -- 45.8% higher on the same period a year ago.

Payouts in this segment was one-third of total payouts -- 87.8 trillion rials ($306m) up 11.15% y/y.

Insurers have repeatedly opposed imposing taxes on third-party auto insurance premium. As per law, insurance companies pay 30% of their revenue from the sale of mandatory third-party auto insurance policies - the segment with the highest share in insurance companies' portfolio -- to state bodies and organizations.

Companies are required to also pay 8% of their premium income from this source to the Bodily Injury Indemnity Fund while 10% of the premium income goes into the pocket of the Health Ministry.

Insurers must also pay 9% VAT on the premium from third-party auto policies. They are reluctant to pay this tax because they insist that organizations receiving the money should regularly report where and how they spend it and whether or not these mandatory payments benefit the key insurance industry.

Iran Insurance Company, the largest and only state-owned company accounts for almost half the total premium from auto insurance.

Road mishaps kill an estimated 17,000 people and injure 200,000 every year imposing huge socioeconomic loss on households.