New CTPL scheme to ensure correct taxes

A system that will ensure the correct tax is remitted from each compulsory third party liability (CTPL) policy sold was launched yesterday by non-life insurers in a bid to hold on to this lucrative insurance business. The system, Philippine Insurers and Reinsurers Association (PIRA) President Micheal F. Rellosa said in a telephone interview yesterday, is an enhancement to the certificate of cover authenticating facility (COCAF) being used by the Land Transportation Office (LTO) to prevent the registration of motor vehicles using fake insurance policies. “The enhancement is meant to promote transparency and ensure that taxes for policies are remitted to the BIR (Bureau of Internal Revenue)," he said. The enhancement, he said, involves payments done at payment centers -- such as those in malls -- found nationwide. “When the payment is made through the payment center, it is automatically split into three: taxes, commission for the agents and the premiums. The amount is then deposited to the accounts of wherever it is supposed to be remitted," he said. The payment centers, he said, is connected to the BIR via an online system that allows the tax bureau to check if payments have been truly made. The CTPL insurance is a requirement for the registration of all motor vehicles with the LTO. In case the motor vehicle causes the injury or death to another person, the insurer would provide the payment for the aggrieved party. “Fifty out of the more than 80 PIRA members go through [COCAF]," Mr. Rellosa said. He said that for payments not made at the payment centers, it would be up to the agents or the insurance companies to remit the taxes to the government. “The downside is the government will not be able to check if taxes are remitted," he said. He said the COCAF was developed and put in place by PIRA in 2007. The facility was intended to prevent the sale of fake insurance policies. “There were reports in the past where fake insurance policies were sold and resold. There was one insurance policy, for instance, that was sold more than 10 times," he said. LTO uses the COCAF by checking the insurance policy number submitted by an applicant with an online database of insurance policy numbers issued by the insurance companies. If the insurance policy number has not been assigned to a motor vehicle, then the registration of the vehicle is allowed to proceed. In 2007, the Department of Transportation and Communication issued Department Order 2007-28 that removed the CTPL business from the private sector, and gave the Government Service Insurance System the exclusive privilege to issue CTPL insurance policies. This was amid the proliferation of fake policies and the non-remittance of taxes to the BIR. Non-life insurers opposed the move and asked for a temporary restraining order against the implementation of the department order. In 2008, the Court of Appeals issued a preliminary injunction on the state pension fund, preventing it from taking over the CTPL business. “The merits of the case will still be heard. As of now, we can issue CTPL," Mr. Rellosa said. -- Louella D. Desiderio, BusinessWorld