The Cabinet’s Tax Reform committee yesterday reached a consensus to impose income, gift and inheritance taxes on investment-linked insurance policies to close a loophole that allows for tax evasion.
The proposal, which still needs to be approved by the Executive Yuan, may go into effect next year and would not be retroactive on current policyholders.
The committee recommended separating investment-linked insurance policies from traditional insurance products and imposing income, gift and inheritance taxes on the former policyholders, if necessary, while leaving the latter group tax free.
Huang Yao-huei (黃耀輝), an associate researcher with the Chung-Hwa Institution for Economic Research who penned the proposal, said the planned reform would have little impact on policyholders as it only seeks to subject income from investment-linked insurance policies to the same treatment as other income.
For instance, only interest exceeding NT$270,000 would be subject to income tax, Huang said, adding that investment-linked policies on overseas funds would remain income-tax free.
Insurers, on the other hand, would not be allowed to use the policies to deduct business income tax, Huang said.
The Financial Supervisory Commission (FSC), which voiced its opposition to the reform on Thursday night, softened its stance yesterday.
Yeh Yin-hua (葉銀華), one of the FSC’s policymaking panelists, said he found the reform plan more reasonable after learning more about it.
“There is no double taxation concern in light of the [policy’s] design,” Yeh told reporters by telephone. “Still, I hope the reform will have a legal foundation before it takes effect.”
Yeh said the FSC would seek to raise the minimum ratio of death benefits to account value from between 101 percent and 130 percent to between 105 percent and 150 percent or 170 percent.
This way, more policies would qualify as insurance and would be free from taxation, Yeh said.
Under the reform proposal, policyholders would have to pay a 10 percent gift levy if they make other people beneficiaries of an amount that exceeds NT$2 million (US$60,000).
There would also be an inheritance tax upon the death of an investment-linked insurance policyholder if the proposed reform is passed.
Minister of Finance Lee Sush-der (李述德) said the proposal was intended to prevent tax evasion because a growing number of people buy insurance policies to avoid paying taxes.
Also See: Trade groups slam new insurance tax