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Arroyo vetoes tax exemption for life insurers


President Gloria Macapagal-Arroyo has vetoed a provision in a new law that would have exempted life insurance premiums from all taxes five years from now. Section 4 of Republic Act (RA) 10001 signed by Mrs. Arroyo on Feb. 23 states that "five years after the effectivity of this Code, no tax on life insurance premiums shall be collected." In her veto message, the President said the exemption of life insurance premiums from taxes violates the Constitution's guarantee of uniform and equitable taxes. "Exempting life insurance premiums from tax as the subject Section 4 provides will result in inequity since other similar financial instruments will continue to be taxable," she pointed out. Mrs. Arroyo said an exemption might also set a precedent for other players in the financial sector to clamor for the same treatment, which could further put government revenues at risk. "Furthermore, it will deprive [the] government of revenues that can be spent on services that benefit the poor most, not to mention that insurance is consumed more by the middle- to high-income earners," she added. The Finance department, which pushed for the veto, estimated P2.2 billion in annual forgone revenues from the exemption. RA 10001 reduces the tax on life insurance to 2 percent from 5 percent of the premiums collected. It also provides a graduated scheme for documentary stamp tax. Sought for comment, Mabini L. Juan, president of the Philippine Life Insurance Association (PLIA), said in a telephone interview the President’s veto had been expected by life insurers. "It was something we discussed with the Department of Finance. We don’t object to the veto of [Section 4]," he said. Juan noted that when the ratified bill was sent to Malacañang, PLIA members had written her saying they understood if Section 4 was turned down. "We understood that we could not be given that advantage," he added. Finance Secretary Margarito B. Teves said in a text message they "agree with the veto." Finance Assistant Secretary Ma. Teresa S. Habitan said the Finance department had recommended the veto to level the playing field among different investment products. "If insurance companies get an exemption, they will get a tax advantage and this will be unfair to other financial sector players [such as] banks and pre-need companies," she said. — Louella D. Desiderio, BusinessWorld

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