By Henry Uche
The Nigerian insurance industry stands at a crossroads as it grapples with the implications of the proposed Tax Reform Bills. While taxation remains a critical tool for generating revenue necessary to fund national development, concerns have surfaced over the potential adverse impact on insurance companies if certain provisions of the bill are left unaddressed.
Ade Adesokan, an insurance professional and a public affairs commentator, in an interview said, at the heart of the industry’s concerns is the plan to apply tax deductions on Gross Premium Income (GPI). Industry stakeholders, represented by the Nigerian Insurers Association (NIA), argue that taxing GPI fails to consider the operational realities of insurance firms. The association’s chairman, Mr. Kunle Ahmed, has strongly voiced the position that GPI does not represent actual revenue earned by insurers.
Rather, it includes funds that are temporarily held by insurance firms, which may eventually be paid out as claims or reserves. The industry insists that basing tax calculations on this gross figure will lead to excessive financial strain, weakening insurers and their ability to fulfill obligations to policyholders.
Adesokan puts “The insurance sector plays a crucial role in economic stability by providing risk management solutions to businesses and individuals. The proposed taxation model risks eroding this foundation by imposing levies that do not accurately reflect insurers’ net income. In an industry that already faces numerous challenges, including low penetration, regulatory compliance costs and economic volatility, further financial burdens could stifle growth and deter new investments.
“Nonetheless, the industry acknowledges the necessity of progressive tax policies that support national development. The NIA has thus appealed to the National Assembly to reassess the taxation model for insurance firms to ensure the bill fosters growth rather than discourages business sustainability.”
The insurance expert confirmed that the association has urged lawmakers to create a tax structure that is aligned with the realities of insurance operations, ensuring that while the government achieves its revenue-generation goals, the financial health of insurers is safeguarded.
“Beyond taxation concerns, the industry also commended the National Assembly for passing the consolidated Insurance Bill, anticipating that its eventual enactment will modernise Nigeria’s insurance framework. The bill promises critical reforms that align industry regulations with global best practices, an overdue necessity given that some governing laws have remained unchanged for decades.
“The impact of taxation varies between life and non-life insurance sectors due to their distinct operational structures. For life insurance, taxation primarily affects investment income and policyholder benefits, while non-life insurers face more direct impacts on premium income and claims payouts. The proposed taxation on gross premium income particularly threatens non-life insurers, potentially leading to higher operational costs, reduced underwriting capacity, and increased premiums for policyholders.”
He added that Nigeria’s apex insurance regulatory body, NAICOM, has been actively engaging with policymakers regarding the proposed Tax Reform Bill. The Commission has historically advocated for fair taxation that supports industry growth and financial stability. Alongside tax policy discussions, NAICOM has been implementing the Risk-Based Capital (RBC) framework, which aims to ensure insurers hold capital proportional to their underwriting risks rather than adhering to fixed thresholds. However, full adoption of the RBC model remains in progress, partly due to the awaited presidential assent to the Consolidated Insurance Bill.
“The proposed Tax Reform Bill introduces significant changes affecting the insurance industry, notably in taxation on Gross Premium Income and recapitalization requirements. Under the proposed law, non-life insurers must maintain a capital base of N15 billion, life insurers N10 billion, and reinsurance firms N35 billion. While these requirements aim to strengthen the industry’s financial stability, they pose considerable challenges for smaller firms.
“Despite these challenges, the Nigerian insurance industry has shown remarkable growth. According to NAICOM, the gross premium written for the fourth quarter of 2023 stood at N1.003 trillion, representing approximately 27 per cent growth compared to the N790 billion recorded in 2022. The insurance market recorded total assets of N2.67 trillion and capitalization of N851 billion in 2023. The non-life segment contributed 61.3 per cent of all premiums written during the year (N615.1 billion), while the life segment contributed 38.7 per cent (N388.1 billion). Net claims posted by the industry reached N669.4 billion, with non-life and life segments contributing N329 billion and N340.4 billion respectively”
The public affairs commentator explained that taxation of life and non-life insurance varies across Africa, with different countries adopting distinct approaches based on their economic structures and regulatory frameworks. In West Africa, insurance taxation is generally structured around corporate income tax, value-added tax (VAT), and insurance premium taxes.
Further more, many countries impose taxes on insurers’ profits, while some apply levies on premiums collected. The specifics vary, but insurers often face challenges related to tax compliance and regulatory changes. In South Africa, life insurance proceeds are generally not taxable, meaning beneficiaries receive the full payout without deductions.
However, certain scenarios can trigger taxation, such as interest earned on installment payouts or profits from surrendering a cash-value policy. Estate taxes may also apply if the policyholder’s estate exceeds a certain threshold. For non-life insurance, South Africa applies VAT to insurance transactions, with specific guidelines on how insurers should handle tax obligations. The VAT treatment of non-life insurance is detailed in regulatory manuals, ensuring compliance with national tax laws.
“The Nigerian industry now awaits the response of lawmakers, hoping that their input will shape a tax policy that balances the country’s fiscal objectives with the sustainability of insurance firms. Stakeholders emphasize the need for engagement with policymakers, strategic recapitalization, operational efficiency, and public awareness regarding the implications of excessive taxation on insurance premiums.
“The stakes are high and a misstep could have far-reaching consequences for both the industry and the broader economy. A well-structured tax policy should serve as a catalyst for economic development rather than a deterrent to insurance industry progress, ensuring Nigeria’s business environment remains competitive, resilient and capable of sustaining growth,” he posited.
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