A policyholder of Agrani Insurance Company Ltd paid a premium of Tk 270,094 against a fire insurance policy in May 2016. The required value-added tax on the premium was Tk 40,514.
But the insurer issued a duplicate money receipt of the National Board of Revenue that showed that the premium amount was Tk 1,340 against the policyholder and consequently paid Tk 201 in VAT to the government exchequer.
This way Agrani Insurance evaded around Tk 5 crore in VAT, according to the findings of the VAT Intelligence Directorate last year.
The case reflects how insurance companies are hiding the original premium in order to dodge taxes, keeping the real growth of the premium of the industry in dark.
“Agrani is not alone and it is a common practice in the insurance industry to dodge VAT,” said Kazi Mostafizur Rahman, commissioner of the Customs, Excise and VAT Commissionerate, Dhaka (South).
How Agrani dodged the VAT is one of the numerous ways that the insurers use to evade tax and VAT, Rahman said.
The VAT Commissionerate has filed a case to realise the money and the insurance company is paying it gradually, Rahman said, adding that financial penalty will be imposed on the company after recovering the sum.
Non-life insurance companies are required to pay 15 percent in VAT on clients' premium as per the Value Added Tax Act, 1991.
The case of Agrani Insurance prompted the VAT Commissionerate to run a massive drive against insurers to find out how they evade taxes, according to Rahman.
Following the findings of the VAT Intelligence, the Insurance Development and Regulatory Authority (IDRA) served a show cause notice on Agrani Insurance and asked it to explain why punitive action will not be taken against it for depriving the government of revenue.
According to the show cause notice served on December 24, the company had been running business on credit breaching insurance laws.
The company did not give any reply to the notice even after a month although it was asked to complete the task in seven days.
When contacted, Gokul Chand Das, a member of the IDRA, said the company did not reply even after getting a 10-day extension. Now, the company will be summoned to a hearing, he added.
The insurance authority is failing to monitor such irregularities due to a lack of workforce, he said.
This correspondent went to the head office of Agrani Insurance recently to meet its CEO Md Anwar Hossain. But Hossain referred the correspondent to Vice President Ahsanur Rahman Joarder.
Joarder denied any VAT evasion, saying the company mistakenly did not pay the VAT on time.
“But we have already paid the full amount that the VAT Intelligence has detected,” he said. Bangladesh is the most underinsured country in the non-life insurance category, standing to lose as much as 0.8 percent of gross domestic product from natural disasters a year, according to Lloyd's of London, one of the leading insurance marketplaces in the world.
Bangladesh fell one notch down to 43rd in the global ranking for insurance penetration in 2012, while the country's premium as a percentage of GDP remained the same at 0.2 percent in 2012. Bangladesh has 45 non-life insurance companies.
“The insurance penetration has remained low just because of the unholy practice of insurers to hide a big portion of premium collected as they have to share a percentage of it with the government,” said Mohammodi Khanam, CEO of Prime Insurance Company.
Insurers collected Tk 11,150 crore in premium in 2017, up 7.39 percent year-on-year, according to IDRA data. Of the total premium, the contribution of the non-life insurance companies was Tk 2,934 crore.