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PGMA lowers tax on life insurance premium

Posted August 19th, 2010 in Corporate News by Employee

 

Purchasing life insurance is now more affordable!

 

President Gloria Macapagal-Arroyo signed into law Republic Act 10001, “an act reducing the tax on life insurance policies”, last February 23, 2010. The new law lowers tax on life insurance premiums to two percent from the previous five percent and allows a one-time graduated documentary stamp tax imposed on life insurance policies.

 

“The documentary stamp tax is reduced from 0.25% to a fixed sum depending on the amount of premiums, up to a maximum of P100, one time,” explained Philippine Prudential Life’s President & CEO Gregorio D. Mercado. Together with other members of the life insurance community and concerned stakeholders, Mr. Mercado revived efforts for the enactment of RA 10001 when he headed the Philippine Life Insurance Association in 2008. It actually took 11 years for the RA 10001 to be ratified.

 

The graduated stamp tax rates are: no charge for policies lower than P100,000; P10 for policies worth more than P100,000 to P300,000; P25 for those worth more than P300,000 to P500,000; P50 for policies worth more than P500,000 to P750,000; and P100 for those worth more than P750,000 to a million pesos.

 

RA 10001 applies to policies sold after the effectivity of the new law and even those sold before the law took effect but with premiums yet to be paid.

 

“As a result of this new law, definitely there will be a rise in sales because some who couldn’t afford life insurance plans will now be able to afford them,” stressed Mr. Mercado, who is presently the president of the Insurance Institute for Asia and the Pacific.

“Now, market forces will dictate when and which products’ prices we will reduce,” he added.

 

Mrs. Arroyo, however, vetoed Section 4 of the new law that would have exempted life insurers from premium tax payments after five years, a move expected by the life insurance industry.

 

“It was something we discussed with the Department of Finance. We don’t object to the veto,” Philippine Life Insurance Industry President Mabini Juan said.

 

The Department of Finance had recommended the veto to ‘level the playing field’ among different financial firms and products.

 

In her veto message, the Chief Executive said that exempting life insurance premiums from taxes would be a violation of the uniform and inequitable rule of taxation since other financial institutions and services would still be required to remit taxes. She also cited the possibility of other organizations requesting a similar privilege and the need for government coffers to be augmented by taxes from life insurance premiums as reasons for the veto.

 

“We understood that we could not be given that advantage,” added Mr. Juan. With reports from Business World and Manila Standard END

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