SECP Proposes Sindh Govt to Revoke Stamp Duty on Insurance Services in Budget FY23

The Securities and Exchange Commission of Pakistan (SECP) has proposed the Sindh government revoke the levy of stamp duty on insurance services and exempt Provincial Sales Tax on personal lines of Non-Life Insurance Business from July 1, 2022.

In this connection, the SECP has submitted budget proposals (2022-23) to the Sindh government for supporting the insurance industry.

The commission proposed that in order to increase financial inclusion – specifically insurance services – the levy of stamp duty on insurance services should be revoked. The proposal bears the concurrence of the subcommittee of NFIS Technical Committee on Digital Financial Services and Payment Systems and the SEC Policy Board which affirmed its significance in respect of the removal of administrative hurdles from insurance processes in the wake of digitization. The NFIS Technical Committee on Insurance was formed in pursuance of the National Financial Inclusion Strategy (NFIS) launched by the Government of Pakistan (GoP) in 2015.

All the provisions related to stamp duty on insurance services ought to be removed from the Stamp Act, 1899 as adopted by Sindh. Draft amendments to the Stamp Act, 1899 of the province of Sindh form part of Annex-III, SECP added.

The SECP’s budget proposal revealed that the personal lines policies, such as personal accident insurance, travel insurance, and home property/household insurance provide peace of mind to individuals against risks of accidental death/accidental injuries, contingencies arising from travel, and risk of theft or damage to household items or home property. Non-life insurers in Pakistan, in general, have resorted to catering to the corporate sector and have by and large not focused on personal lines of the non-life insurance business. This can be considered as one of the reasons for the fact that the penetration of non-life insurance is 0.3 percent, whereas penetration of the life insurance sector is almost double i.e. 0.54 percent.

The SECP proposed that incentivizing personal lines of non-life insurances through exemption from the provincial sales tax would not only encourage non-life insurers to venture more into personal lines of business and especially into the sale of low-ticket insurance products for the masses but would also create a conducive environment for individuals to purchase personal lines of non-life insurance products. This would reduce the cost of premiums for such products and may result in increased business prospects for insurers whilst providing products to the masses at a lower premium.

It is proposed that personal lines of non-life insurance business i.e. personal accident insurance, travel insurance, and home property/household insurance be exempted from the application of provincial sales tax. To give effect to the proposal, amendments to the Sindh sales tax law are being suggested as personal accident insurance, travel insurance, and home property/ household insurance be specifically excluded in Rule 31 of the Sindh Sales Tax on Services Rules, 2011, SECP added.