Insurers given big tax break with higher deduction ceiling
Source: Asia Insurance Review | Jul 2019
Insurance companies will be able to get a higher tax deduction on the commission expenses and fees incurred in their operations, according to a statement released by the taxation department of the Ministry of Finance.
On 29 May, the department issued the “Announcement on the Pre-tax Deduction Policy for Fees and Commission Expenses of Insurance Enterprises”, stating that the deduction ratio for handling fees and commission expenses for insurance companies is increased to 18%.
The 18% is of the total premium income of the current year after deducting premiums returned. In addition, any excess of actual fees and commission expenses above the deduction allowable is now allowed to be carried forward.
The effective implementation of the new tax rule is backdated to 1 January 2019.
Under the previous tax regulation, P&C insurers were allowed a 15% deduction based on premium income after premiums returned while life insurers were allowed a 10% deduction.
The new rule means that the after-tax profits of insurance companies will receive a huge boost, starting with financial results for this year.
According to rough calculations by Tianfeng Securities, the net profit of PICC, China Life, New China, China Pacific and Ping An in 2018 could be increased by about 29%, 45%, 25%, 22% and 11% had the new tax policy took effect last year. A