Reshaping the tax system that supports the Financial Sector Development Strategy – Insurance perspective – Insurance Regulatory Authority of Uganda

RESHAPING THE TAX SYSTEM THAT SUPPORTS
THE FINANCIAL SECTOR DEVELOPMENT
STRATEGY - INSURANCE PERSPECTIVE
ALHAJ KADDUNABBI IBRAHIM
LUBEGA
CHIEF EXECUTIVE OFFICER
ira@ira.go.ug
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DRIVING INSURANCE GROWTH

Presentation Outline
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1.Sectoral
performance
metrics -
Highlights.
2.Sectors contribution
to Tax Revenue.
3.How can Insurance Sector’s Contribution to Tax Revenue be
enhanced?
4. Conclusion

1.SECTORAL PERFORMANCE
METRICS AND OUTLOOK
i) Aggregated Industry Performance from 2017-2021
As at the end of 2021, the Insurance sector generated Ushs1,184billion
growing at an average rate of 13.31 percent from Ushs 728.5billion in 2017.
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DRIVING INSURANCE GROWTH ira@ira.go.ug

ii) Insurance Penetration
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• Insurance Penetration slightly improved by 0.03percent from
0.77percent in 2020 to 0.800 percent in 2021. This shouldn’t be
construed to mean that growth in insurance was insignificant but rather
the continued spread effect of the rebased GDP. Averagely, the
penetration has been at 0.8 percent throughout the five years.

iii) Insurance Density
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• The insurance density in 2021 was Ushs 29,597, a steady increase
from 2017 where it was at Ushs 19,284. It has been Ushs 23,975
averagely for five years. This is a perfect measure of insurance
deepening.

2. SECTOR’S CONTRIBUTION
TO TAX REVENUE
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DRIVING INSURANCEGROWTH
Tax Type 2016/2017 2017/2018 2018/2019 2019/2020
Income Tax 13,681,317,570 16,322,990,958 18,160,847,402 19,793,178,271
Rental Tax 808,322,251 685,154,386 899,736,104 1,587,678,186
PAYE 24,606,807,128 26,456,314,497 30,420,175,642 28,027,881,139
Stamp Duty 7,490,475,000 11,791,106,225 11,117,335,000 Not Availed
VAT 52,029,868,674 70,394,403,709 84,267,568,363 82,563,457,520
WHT 17,371,759,110 19,650,359,709 24,592,449,033 23,563,897,557
Total 115,988,549,733 145,300,329,484 170,146,053,626 155,536,092,673

3.HOW CAN INSURANCE SECTOR’S
CONTRIBUTION TO TAX REVENUE BE
ENHANCED?
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a)Waiver of stamp duty and VAT on social insurance policies
such as MTP where currently, the tax component far exceeds the
insurance component, hence discouraging consumption.
b) Waiver of taxes on savings-based insurance products such as
Unit Trusts (where the interest is taxed). This will encourage
savings together with all its associated benefits to the economy.
c) Fast-track the amendment of the MTP Act and the attendant
Regulations to enhance the the depth and breadth of the scope of
cover .

ENHANCED?
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d) ENFORCEMENT OF THE WORKERS COMPENSATION ACT:
i.In Uganda on average 2,000 cases of work-related accidents are reported annually. Very few
employers provide a safe and healthy working environment for decent work. These incidences are
contributing to very low productivity, disabilities and loss of life at many workplaces across the
country.
ii.The Government of Uganda is not enforcing the Workers Compensation Act, 2000 which
mandates that; “Every employer shall insure and keep himself/herself insured in respect of any
liability which he/she may incur under the Act to any worker employed by him/her (in
accordance with S. 18 (1) of the Act)”.
iii.We recommend that a pronouncement is made to the effect that: KCCA; Municipals; district
authorities at the point of application or renewal of trade licenses should ensure that;
 Workers Compensation Insurance (WCI) is a requirement to license companies to do
business in this country
A Workers’ Compensation Certificate issued and displayed on the premises of the employers

ENHANCED?
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BENEFITS OF ENFORCEMENT OF THE WORKERS
COMPENSATION ACT TO GOVERNMENT
On average, people spent UGX, 97,000 on WCI and currently about
90,000 people are insured
According to the 2014 population census, 6M people are the formal
working population, taking average compliance of 3M people.
So, for the 3M, taking an average of 5 people per policy (translating
into 600,000 policies) who are dependent on salary earned, but taking
the minimum premium of Ugx.97, 000 based on policies written by
insurance companies.

ENHANCED?
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BENEFITS OF ENFORCEMENT OF THE WORKERS COMPENSATION ACT
TO GOVERNMENT
With full compliance, the following benefits will acrue:
58BN in WCP premiums
21BN in Stamp Duty revenues
10.4BN in VAT revenues
Corporate Tax with additional business underwritten
The employees will be protected, their productivity
enhanced and the employers will be in position to
manage their businesses sustainably.

OTHER PROPOSALS FOR MUTUAL BENEFITS TO
THE INSURANCE SECTOR AND ECONOMY
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1.Insurance of Public & commercial buildings
a)Currently, it is not mandatory for public & commercial buildings to
have fire & public liability insurance, yet it is a best practice as
evidenced by countries like Tanzania.
b)We recommend that the Government of Uganda through the ministry
of Finance should issue a directive that mandates all Public and
Commercial building to have fire insurance and Public liability insurance
that is renewable annually.
c) According to the UBOS statistical abstract 2015:
About 130 occupational permits were issued in 2015 for commercial
building set ups; - About 50 occupational permits were issued in 2019
for institutional building set ups.

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d)Taking 2019 as an average and assuming each building valued at 1bn;
and a minimum premium rates of @0.3% for commercial, @0.125%
institutional buildings, Government could attain; Ugx.3.5BN in VAT
on commercial building and 1.4BN in VAT on Institutional building
e)Insurers could attain;
Ugx 19.5 BN on commercial building and
Ugx.8.1 BN on institutional building in insurance premiums.
Corporate tax to government would accrue from these premiums.
Value to the Owners? - Yes, the Directorate of police Fire Prevention and rescue
services report indicated that Uganda loses an estimated UShs 30Bn each year
because of fire breakouts in business premises such as factories and shops. With the
proposal implemented, this would be saved.

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d)Taking 2019 as an average and assuming each building valued at 1bn;
and a minimum premium rates of @0.3% for commercial, @0.125%
institutional buildings, Government could attain; Ugx.3.5BN in VAT
on commercial building and 1.4BN in VAT on Institutional building
e)Insurers could attain;
Ugx 19.5 BN on commercial building and
Ugx.8.1 BN on institutional building in insurance premiums.
Corporate tax to government would accrue from these premiums.
Value to the Owners? - Yes, the Directorate of police Fire Prevention and rescue
services report indicated that Uganda loses an estimated UShs 30Bn each year
because of fire breakouts in business premises such as factories and shops. With the
proposal implemented, this would be saved.

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2. Clauses for on-going & future gov’t infrastructure projects for
mandatory insurance (contractors all risk etc.)
a)Currently, there is no such provision ensuring insurance of Government
infrastructure operations;
b)We recommend that the Government of Uganda through the ministry
of Works and transport should direct that all on going and future
Government projects should with immediate effect have a clause
directing the maximum usage of local insurance services for such
projects in line with section 3(2) of the Insurance Act.
c)With this pronouncement implemented:
The premium cost as well as the cost of doing due diligence on
Government would be low.

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With this pronouncement implemented:
The premium cost as well as the cost of doing due diligence on
Government would be low.
The unnecessary cost of pursuing a claim settlement outside Uganda
would be avoided.
There would be reduced premium flight which would have multiplier
effect on the industry and on economic growth

4. CONCLUSION
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 The Insurance sector is growing and it has potential to contribute much
more revenue to government;
The greatest driver for enhanced contribution lies in promoting sector
growth through improved enforcement of existing laws and closing
gaps;
It will also be important to review the current regime for some of the
products with a view of enhancing the other benefits of consumption of
such products to the economy.

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Reshaping the tax system that supports the Financial Sector Development Strategy – Insurance perspective – Insurance Regulatory Authority of Uganda

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Reshaping the tax system that supports the Financial Sector Development Strategy – Insurance perspective – Insurance Regulatory Authority of Uganda