Local life insurers yesterday expressed strong opposition to the Ministry of Finance's new proposal of canceling tax exemptions on pension and life insurance benefits.
"It makes no sense at all for the government, which provides welfare benefits to the poor to then turn around and levy income taxes on insurance benefits," said Horng Tsann-nan (
Horng calledthe ministry's new policy "egg-headed."
On Wednesday, the ministry's financial committee heatedly discussed numerous tax-reform plans, including the taxation of life insurance benefits, along with a host of other insurance benefits, which are currently tax-free.
"On the grounds of tax justice, a fixed sum should be earmarked to be tax-free and taxation should be made on the remaining incomes, including those from pension and life-insurance benefits," the ministry's proposal stated.
The new proposal suggests maintaining a tax-free deductible amount of NT$24,000 (per person, per year) for insurance premiums, while tax-free status will be offered to mandatory insurance premiums such as the government's health, labor and military insurance.
Ministry officials said that insurance benefits, after insurance policies expire, should be regarded as earnings and taxed in accordance with other personal income. They also argued that the current tax-free treatment has triggered social injustice since many rich people have taken advantage of the tax break as a loophole to dodge inheritance taxes by buying large-amounts of insurance to pass on to their beneficiaries.
The ministry's proposal, however, failed to earmark a clear deductible standard for the new tax categories.
Horng also said the new policy would have a negative impact on life insurers.
He said that insurance has been widely used as a financial tool to reduce tax payments. Now that no tax breaks will be offered, taxpayers may now choose to deposit their money in foreign accounts to avoid further taxation, he said.
"An outbound cash flow may be triggered," Horng said.
Local life insurers may soon hold a meeting to jointly voice their opposition before the new policy is approved by the legislature.
The government should not levy any taxes on pension insurance since taxpayers "save their own after-tax money for later use" since the government's pension system isn't in place yet, he said
Alex Lai (賴昱誠), vice president of Nan Shan Life Insurance Co (南山人壽) said that the ministry's latest move is "likely to reduce consumer willingness to buy insurance."
"Insurers help to maintain social stability, so the government should provide preferential tax incentives," Lai said.
A manager from Cathay Life Insurance Co (
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