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Plan to tax insurance income draws flak

Soh el Parvez
Life insurance policy-holders will have to
pay taxes on their incomes after maturity of policies -- a government move that industry leaders and an analyst find discouraging to long-term savings.
The plan may come to effect from the next fiscal year.
Tax officials, however, said such a plan is logical as savers in banks also have to pay taxes on their incomes.
They said the tax on life insurance policyholders' income will rather ensure an equal regime for banks and insurers.
The move to collect tax from the interest earnings of the life insurance policyholders comes in Finance Minister AMA Muhith's budget proposal for the coming fiscal year.
The minister proposed a deduction of 10 percent tax on incomes in excess of premiums paid by a policyholder at the time of maturity of the policy.
"But the tax will not be applicable in case of death of a policyholder before the maturity of the policy," said a senior official of the National Board of Revenue (NBR), requesting not to be named.
This is the first time the NBR imposes tax on such income as part of its aim to boost collection to finance a bulk of the government's budgetary expenditure at Tk 191,738 crore for the next fiscal year.
The tax administration will need to collect Tk 112,259 crore for the next fiscal year, up by 21 percent from Tk 92,370 crore in the current year.
"The amount of taxes from the life insurance policy-holders may not be high. But it will be good for ensuring equality as savers in banks have to pay taxes on their interest incomes," said the NBR official.
Sheikh Kabir Hossain, president of Bangladesh Insurance Association (BIA), however, termed the government's move as 'inappropriate'.
"It will discourage people, especially who are in rural and semi-urban areas, to buy life insurance policies," he said, "The government should review the decision considering the poor coverage of life insurance in our country."
The move comes at a time when life insurance penetration continues to rise, partly because of a lack of social security and protection measures by the government.
Hossain said only 5 percent of Bangladesh's total population at 16 crore are under life insurance coverage.
Towfiqul Islam Khan, senior research associate of the Centre for Policy Dialogue (CPD), sees the tax imposition as part of the government's desperate move to boost revenue to finance next fiscal year's budget.
"The imposition of tax may discourage longterm savings as it will act as a disincentive to the policyholders," said Khan.
"We need to generate more savings to boost investment," he said.
Khan said this type of instrument can be a protection for low- and mid-income people as social security is low in Bangladesh. From that perspective, the step does not seem good, said Khan.
Currendy 19 life insurers, including state-owned Jiban Bima Corporation and foreign Metiife Alico, are in operations in Bangladesh.