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LIFE INSURANCE TAXES REDUCED

 

The Bureau of Internal Revenue (BIR) released Revenue Memorandum Circular No. 22-2010 (RMC 22-2010) publishing the full text of Republic Act 10001 on March 8, 2010. R.A. 10001 is an act reducing the taxes on life insurance policies, amending for this purpose sections 123 and 183 of the National Internal Revenue Code of 1997, as amended.

 

R.A. 10001 reduced the existing premium tax rate from 5% to 2%.

 

On the other hand, the Documentary Stamp Tax (DST) which currently stands at 0.25% of premium will be changed to a fixed one-time amount in accordance with the following schedule:

 

Amount of Insurance

DST

<= P 100,000

Exempt

<= P 300,000

P 10.00

<= P 500,000

P 25.00

<= P 750,000

P 50.00

<= P 1,000,000

P 75.00

> P 1,000,000

P 100.00

 

Employers providing group insurance coverage for their employees should enjoy a direct reduction in premium of around 4% to 5%*. Favorable claims experience should add more leeway to reduce the premium rates. Thus, this is a good time to re-negotiate premium rates to reduce employee benefit costs. The reduction in taxes should also create some room for employers to negotiate for a better experience refund formula.

 

For those with unfavorable claims experience, the tax reduction should offset or reduce the increase in premium rate.

 

(*Know / Learn why a 3% reduction in premium tax could reduce the premium rate by as much as 5% and many other ways to manage employee benefit costs. Attend our Seminar on Managing Employee Benefit Costs at Mandarin Oriental on June 17, 2010).