Insurance

Abstract

Chapter 14 shows that insurance can be included in the VAT base by taxing premiums and imputing a VAT credit to indemnifications. Instead of taxing insurance, African countries, following EU practice, exempt insurance and impose various insurance (premium) taxes (francophone countries) or stamp duties (anglophone countries other than SACU countries). The chapter argues that exemption and separate taxation are administratively complex and distortionary elements in the tax systems of African countries. As shown by the South African experience, inclusion in the VAT base of property and casualty insurance is feasible, and is simpler and more efficient than the current systems. Full taxation would be more difficult for life and health insurance, which, if desired, can be taxed under the addition method. The last section summarizes the taxable status of insurance services under present arrangements and under the proposed approach.