Insurance weighed down by lack of awareness, taxes

The insurance industry is lagging behind for a lack of trust and awareness among people, said stakeholders yesterday.

Moreover, the sector is overburdened with taxes imposed at several levels, which hinders growth, said Sheikh Kabir Hossain, president of Bangladesh Insurance Association (BIA), speaking at a pre-budget press meet at the association's headquarters in Dhaka.

The sector could not grow to its potential for the government's negligence, he added.

Stakeholders also failed to build trust among the people and create a positive impression about insurance in the market, he said.

Placing a six-point demand, the sector wants withdrawal of the 5 percent gain tax on deposit holder's profit, 15 percent VAT against agent commission, 5 percent source tax and tax on excess expenses, reduction of corporate tax and an increase in the tax free dividend income limit.

He said deposit holders do not get lucrative returns from the insurance companies, as their main benefit is accident coverage.

When there is no accident, the policy holders are given very little amount in return at maturity of their deposits. The government imposed 5 percent gain tax on the depositor's income in 2014, which is unacceptable. No other country has such a practice, he added.

Such taxes make people reluctant; policy holders would much rather deposit their money with the banks, he said.

The government imposed dual taxes on insurance agents through 15 percent VAT and 5 percent source tax, he added.

Insurance companies also have to pay 40 percent income tax on excess expense.

There is a provision for fines by Insurance Development and Regulatory Authority for management expenses beyond the limit.

The high level of taxes makes it difficult for the weaker insurance companies to sustain in the market, said Hossain, who is also the chairman of Sonar Bangla Insurance.

Finance Minister AMA Muhith and National Board of Revenue Chairman Md Nojibur Rahman both agreed with BIA's proposal earlier, but they could not withdraw the taxes to sustain the large budget, said Ahasanul Islam Titu, vice president of BIA.

He said insurance penetration in terms of GDP is less than 1 percent in Bangladesh, which is insignificant compared to other countries, including neighbouring India.

It is mandatory for every organisation to have insurance policies for their labour force as per the labour law, but most companies are non-compliant, he added.

The government has to monitor implementation of the law, he said.

The sector needs incentives from the government to grow. More business means more returns for the exchequer, he added.