Himalayan News Service

Kathmandu, May 2:

Nepal Insurer’s Association (NIA) has urged the government to simplify some issues concerning the insurance business, saying it would boost the overall growth of the industry.

Rajendra Kumar Khetan, president of NIA presented the report on ‘insurance companies’ issues in Nepal’ at a programme here. The report covers a wide range of issues related to revenue, acts and rules, and other practical provisions to be modified by the insurance companies in Nepal. The report is prepared by G B Bhari and Co, an independent chartered accountant firm for NIA.

On the occasion, NIA president Khetan made a presentation on the issues raised by the report. Despite an encouraging growth registered by the industry in the recent years, Nepal is yet to utilise the total prospect, as its contribution to the gross domestic product (GDP) is a mere 1.4 per cent. “Centralisation of the insurance industry in urban areas and lack of awareness in public on importance of insurance are the main reasons for slower growth,” commented Khetan, adding that existing market coverage is only about 3-5 per cent of total prospect.

The report has also recommended to withdraw withholding of tax on payment of insurance premium, saying that tax deduction at sources (TDS) has created unnecessary hassle.

“To encourage public to buy life insurance policy, tax rebate for life insurance premium of seven per cent or Rs 10,000 whichever is lower allowed for deduction on taxable income should be treated as rebate on tax liability in uniformity with global practice,” states the report.

Tax levied on amount paid to an insured against the loss of life should be revised, as it is not income instead a compensation. As per the Income Tax Act-2002, amount paid to an insured against the loss of life is treated as income and tax is levied. “The insurance industry should be treated in line with other service industries such as tourism and shall be taxed at 25 per cent of corporate tax instead of current 30 per cent,” NIA has suggested in the report.

Referring to the growth attained by the insurance industry, the report emphasises on establishment of a reinsurance company in Nepal. In absence of such a company about 13 per cent in life and 50 per cent in non-life insurance premium is flowing out in foreign currency to India and other parts of the world.

Prior approval for the purchase of life policy above Rs 5.0 lakhs should be withdrawn considering the government’s policy of liberalisation, privatisation and Nepal’s accession to the World Trade Organisation (WTO) as well as ratification of South Asia Free Trade Agreement (SAFTA).

The report has also suggested to review one per cent of service fee out of gross insurance premium, which is relatively higher in the context of increased insurance business. The report has further suggested to use a 50 per cent of net premium kept as risk reserve, while calculating paid-up capital requirement in the course of increasing the ceiling of Rs 100 million within the fiscal year of 2064-65.

Dr Yubraj Khatiwada, National Planning Commission member said that a downward revision of existing revenue policies would be only possible once the revenue base is widened.

Madhav Upadhay, chairman of the Beema Samiti on the occasion said that it is planning to develop ‘Emergency Insurance Fund’ as a reinsurance company. “Some of the suggestions in the report are in the process of implementation and some will be taken into the consideration in future,” he assured.