As per a notice from the Iranian National Tax Administration, as of Monday life insurance, complementary medical insurance, social security coverage and agro products insurance will be exempt from value added tax.
According to the Value Added Tax Law approved by the parliament and set to take effect Jan. 3, the above-mentioned sectors are exempt from VAT, the notice said as reported by Risknews.
The aim of the exemption is to decrease premium costs and increase the profitability of insurance services.
It also is a positive response to insurance companies' complaints about the negative impact of VAT on life insurance policies. They maintain that the tax rates are not compatible with their earnings.
VAT in Iran is a fixed 9%. The exemption would help insurance companies save 25 trillion rials ($85 million) in premium income in the medical insurance category, the Iran Insurers Syndicate said.
Insurers say VAT exemption they cannot meet targets set in the development plans of the sector. A long-term plan stipulates that the insurance industry should reach a penetration rate of 7% this year.
The new rules, however, do not include other insurance segments, such as the mandatory third-party vehicle insurance – the main source of income for insurers.
Experts see this as a hurdle to expanding the role and significance of the insurance industry in the economy, especially in improving the business climate, creating jobs, providing aid during natural disasters, financial inclusion, supporting the rapidly aging population and safeguarding the environment.
Insurance companies generated 602 trillion rials ($2.09 billion) from 38.5 million policies in the first seven months of the calendar year that ends in March.
Data show insurers posted 41.2% growth in total premium income in the same period last year. The number of policies sold grew by 2.52% y/y.
Medical insurance is one of the main sources of their income. This segment generated 110.4 trillion rials ($384m) or 18.3% of the premium income in the first seven months of the year -- 46% higher on the same period last year. In sum, 552,796 medical insurance policies were sold in the period, up 155.3% Y/Y.
Life insurance was the third largest source of income for insurance companies at 15.04% of their total earnings in the seven months. They made 90.5 trillion rials ($315m) from 4.35 million life insurance policies posting 44.43% and 8.73% increase in value and volume, respectively.
