Karachi, February 4, 2024 – In a significant development, insurance services offered by insurance companies will be subjected to a 13 percent sales tax in the tax year 2024, as per the updated Sales Tax on Services Act, 2011, released by the Sindh Revenue Board (SRB).
The revised tax policy, which came into effect recently, stipulates that insurance companies are obligated to remit a 13 percent sales tax on various services falling under the domain of insurance. This taxation applies to services provided or rendered in connection with insurance to a policyholder by an insurer, including reinsurers. Furthermore, the tax encompasses services provided or rendered by insurance companies in relation to guarantees, incorporating insurance guarantees.
The specific categories covered under the ambit of this sales tax include:
1. Goods Insurance: This category involves insurance services related to the coverage of goods against potential risks or damages during transit or storage.
2. Fire Insurance: Insurance services pertaining to protection against fire-related risks, including damages to property and assets caused by fire incidents.
3. Theft Insurance: Services covering protection against theft, compensating policyholders for losses incurred due to theft or burglary.
4. Marine Insurance: Insurance services safeguarding goods, vessels, and shipments against risks associated with marine activities, such as accidents, piracy, or natural disasters.
5. Life Insurance: This category includes services providing financial protection to policyholders and their beneficiaries in case of the insured person’s death.
6. Other Insurance, Including Reinsurance: Encompassing a broad spectrum of insurance services beyond the mentioned categories, this includes diverse forms of coverage and risk management.
7. Services Provided or Rendered in Relation to Guarantees, Including an Insurance Guarantee: This involves services related to various types of guarantees, including those with an insurance component, where the insurance company assumes liability for certain risks.
The decision to impose a 13 percent sales tax on insurance services aligns with the broader tax policy framework and revenue strategies of the Sindh government. While such taxation measures can contribute to the government’s revenue generation, they may also impact the insurance industry and policyholders.
Insurance companies operating in Sindh are now mandated to adjust their financial models and pricing structures to accommodate the increased tax burden. Policyholders, in turn, may experience changes in premium rates or coverage costs as insurance providers adapt to the new tax regime.
It is essential for stakeholders, including insurance companies, policymakers, and consumers, to stay informed about these regulatory changes and their potential implications on the insurance landscape in Sindh. As the tax year unfolds, the industry will closely monitor the effects of the 13 percent sales tax on insurance services, gauging its impact on business operations, consumer choices, and overall market dynamics.
