The budget proposal to exempt reinsurance commissions and claims from VAT to reduce the transaction cost of insurance was welcomed by the insurance industry, who said that this important step relieves the industry from a huge un-anticipated burden which could have escalated in the future.
“This is a very important step taken by the Government since some insurance companies had received VAT assessments on reinsurance commissions and claims running into hundreds of millions in rupees which they would not have been able to bear,” Manjula de Silva, President Insurance Association of Sri Lanka told the Business Times.
He said that since insurance companies charge VAT on insurance premiums paid by their customers and remit to the Department of Inland Revenue, these transactions have been already subjected to VAT once. “Imposing VAT on reinsurance transactions which are derived from the primary transaction would result in a duplication of taxes,” he explained.
Mr. De Silva noted that the industry would not have been able to recover these from global reinsurers who are not accustomed to such a practice anywhere else in the world and would have had to absorb it themselves contrary to the principles of VAT. |
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