The government is likely to withdraw the one percent Federal Insurance Fee (FIF) applicable on non-life insurance premiums in the next fiscal year budget 2022-23.
Sources told ProPakistani that the Securities Exchange Commission of Pakistan has proposed the federal government to withdraw FIF applicable on non-life insurance premiums in order to develop the insurance sector in Pakistan, increase insurance penetration, enhance financial inclusion and provide cost-effective insurance solutions to the masses at large.
SECP in its proposal mentioned that the withdrawal will facilitate the insurance industry and insurance policyholders and it also aligns with the agenda of the federal government on ease of doing business.
Sources said that Pakistan has one of the lowest insurance penetration in the region and therefore, SECP’s efforts are focused to promote the insurance industry in particular, low-ticket insurance products and personal lines of non-life insurance business to serve the poor and most vulnerable segment of society.
SECP believes that micro-insurance products can play an instrumental role in the development of the insurance market in Pakistan.
Sources also said that the Federal Insurance Fee (FIF) was levied by the government in the Finance Act, of 1989, at the rate of 1 percent of the premium paid on all kinds of non-life insurance businesses.
The industry is of the view that at the time of announcement of Budget 1989-90 an understanding was given that this fee has been levied with the intention to spend the amount for developing insurance education in the country, for bringing awareness about insurance amongst the masses and providing infrastructure for prevention and minimizing of losses.
However, the purpose for which the FIF was levied has not been fulfilled and the insurance sector has been bearing this additional cost for the last 30 years without any benefit to the insurance industry.
Considering that insurance penetration in Pakistan is among the lower in the region, concentrated efforts are required by all stakeholders to increase the outreach of the insurance business and its awareness amongst the masses.
The levy of FIF is in addition to Federal Excise Duty (FED)/Provincial Sales Tax (PST) and stamp duty applicable to the insurance business. All these duties and FIF combine to make the non-life insurance product costlier and unaffordable for the policyholders.
Earlier, the SECP had, through a letter dated April 05, 2019, placed before the Finance Division the proposal to withdraw FIF. In response, the Finance Division in a letter dated May 23, 2019, stated that the withdrawal of FIF would negatively impact the non-tax revenue of the federal government and considering the financial position of the country, it is not favourable to allow any shortfall in the non-tax revenue at this stage.