GMA signs law reducing taxes on life insurance

ANILA, Philippines – President Arroyo has signed into law a bill that reduces taxes on life insurance from five percent to two percent and provides staggered rates for documentary stamp tax.

In signing Republic Act 10001, titled “An Act Reducing the Taxes on Life Insurance Policies Amending for this Purpose Sections 123 and 183 of the National Internal Revenue Code (NIRC) of 1997, as amended,” Mrs. Arroyo vetoed Section 4 of the bill to avoid inequity in taxation and protect government revenues.

In vetoing Section 4, the President said exempting life insurance premiums from tax would result in inequity since other similar financial instruments will continue to be taxable.

Exempting life insurance premiums from tax will only benefit life insurance providers.

The law amended Section 123 and Section 183 of the National Internal Revenue Code NIRC of 1997.

With the new law, Section 123 of the NIRC now reads as: “There shall be collected from every person, company or corporation (except purely cooperative companies or associations) doing life insurance business of any sort in the Philippines a tax of two percent of the total premium collected, whether such premiums are paid in money, notes, credits or any substitute for money; but premiums refunded within six months after payment on account of rejection of risk or returned for other reason to a person insured shall not be included in the taxable receipts; nor shall any tax be paid upon reinsurance by a company that has already paid the tax; nor upon premiums collected or received by any branch of a domestic corporation, firm or association doing business outside the Philippines on account of any life insurance of the insured who is a nonresident.”

“If any tax on such premium is imposed by the foreign country where the branch is established nor upon premiums collected or received on account of any reinsurance, if the insured, in case of personal insurance, resides outside the Philippines, if any tax on such premiums is imposed by the foreign country where the original insurance has been issued or perfected; nor upon that portion of the premiums collected or received by the insurance companies on variable contracts in excess of the amounts necessary to insure the lives of the variable contract workers.”

The new rate of two percent shall apply only to insurance policies that would be issued after the effectivity of the law, provided, that insurance policy taken out before the effectivity of the law but the premiums are not yet fully paid, the new rate of two percent shall be applied to the remaining balance and for the remaining years.

Section 183 of the NIRC will now read as: “SEC. 183. Stamp Tax on Life Insurance Policies. – On all policies of insurance or other instruments by whatever name the same may be called, whereby any insurance shall be made or renewed upon any life or lives, there shall be collected a documentary stamp tax at the following rates:

• If the amount of insurance does not exceed P100,000—exempt;

• If the amount of insurance exceeds P100,000 but does not exceed P300,000 —P10;

• If the amount of insurance exceeds P300,000 but does not exceed P500,000 —P25;

• If the amount of insurance exceeds P500,000 but does not exceed P750,000 —P50;

• If the amount of insurance exceeds P750,000 but does not exceed P1 million — P75;

• If the amount of insurance exceeds P1 million—P100. –Paolo Romero (The Philippine Star)