ECONOMISTS DISTINGUISH between 'saving surplus' and 'saving deficit' institutions with the life insurance industry falling into the former. This points to the fact that life insurance companies play a vital role in mobilising a nation's savings and, thus, become a source of medium and long-term finance for the economic development of the country. In Jamaica, many entrepreneurs automatically look to short-term bank borrowings to finance long-term assets like factories - a practice that inevitably leads to cash flow problems.It is counter-productive and ill-advised, therefore, to increase taxes on the premium and investment income of life insurance companies as is now being proposed by the Parliamentary Tax Committee. We assume that the case against such a move is so logically strong that the industry will successfully lobby to have the proposed taxes withdrawn or reduced.
Not long ago the Jamaican life insurance industry had to be rescued by counterpart companies in Trinidad and Barbados which are now claiming that the proposed new tax structure will be devastating to their investments and that they may have to pull out of Jamaica. There may be some hyperbole in this reaction. Life insurance companies are not subject to regular income tax and this remains an important incentive.
Taxing health care insurance also seems to be a wrong move. The profits of this branch of the insurance industry are subject to income tax. Too few Jamaicans have health insurance and the increased costs of such coverage as a result of the proposed new taxes could put it beyond the reach of many. Even large commercial enterprises which now provide their employees with medical coverage may have to abandon or cut back on such schemes as being too expensive.
Under these circumstances we urge the government to consider carefully the recommendations of the Tax Committee.
