Life assurance-loophole closed on tax exemption

New lifeassurance policyholders with at least 10year life coverage will be eligible for a lower personaltax exemption from this year onwards, as the premium on health insurance - which is bundled with the life insurance - will not be deemed taxdeductible.

However, this year, insured persons can still claim tax deductions of up to Bt100,000 on the premium for life insurance paid last year.

Only 10year life assurance and policies for longer periods will be eligible for tax deduction, according to the tax law.

Until now, lifeassurance firms sold life, health and accident protection as a single lifeinsurance package and all premiums paid were eligible for tax exemption.

Vinai Vittavasgarnvej, directorgeneral of the Revenue Department, said yesterday that insurance firms had to exclude life premiums from other premiums such as those for health protection in order for policyholders to claim a deduction from their personal income tax.

"This will affect only those who buy life assurance this year, but it will not retroactively apply to those who bought life policies previously," he said.

Currently, there are about 10 million lifeinsurance policyholders.

Satit Rungkasiri, adviser to the department, said the new requirement was aimed at plugging a loophole in the tax law.

The new regulations will make it clear exactly what will be eligible for tax deduction under lifeinsurance premiums, he said.

He added that insurance firms had tried to exploit a legal loophole by selling some products that do not meet the intent of the tax law, which was aimed at promoting longterm savings. The wider use of information technology has enabled the Revenue Department to scrutinise tax payments more effectively, he said.

If the government wanted to expand tax deduction to include health insurance, it would have to amend the law.

Another important condition is that the dividend paid to policyholders each year must not exceed 20 per cent of the premium paid in that year.

Lifeassurers must clearly inform policyholders in receipts how much can be used for tax deduction.

Responding to the question of discriminatory practices, Vinai said the department could not apply the rule retroactively as it would negatively affect the interests of existing policyholders.

So, they will continue to enjoy their current tax exemption until the end of the contract.

New policyholders are required to follow the law strictly as it grants tax deduction only on lifeinsurance premiums, he said.

Meanwhile, Thai Life Assurance Association president Sara Lamsam said it was impossible for the firms to recalculate life premiums and separate them from premiums paid for other protection, due to the huge portfolio of about 12 million policyholders.

He said life premiums were estimated to total about Bt200 billion, of which only around 10 per cent is considered as premiums paid for other types of protection.