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A Study On The Legal System Of Commercial Life Insurance Income Tax In China

Posted on:2016-02-13Degree:DoctorType:Dissertation
Country:ChinaCandidate:W NingFull Text:PDF
GTID:1106330503487600Subject:Public Finance
Abstract/Summary:PDF Full Text Request
Since China’s commercial life insurance resumed in 1982, its premium income has increased from 1.59 million RMB in 1982 to 1.101 trillion RMB in 2013, an average annual increase of 61.38%. The growth rate of premium income drastically surpasses that of GDP, and the premium income of life insurance accounts for 85.61% of personal insurance premium. However, most citizens are not familiar with commercial life insurance. By the end of December 2013, life insurance penetration was 1.66%, and its insurance density was 708 RMB per person, which does not match the aggregate economic scale in China.The central bank of China has lowered deposit interest rates for 8 consecutive years from 1996 to 2002. In order to adapt to this new situation and avoid interest rates risk, since the emergence of variable life insurance in the market in 1999, traditional life insurance products including death insurance, survival insurance, endowment insurance have developed into innovative ones represented by participating insurance, variable life insurance, universal life insurance, with the trend of integrated financial services. The spread of innovative insurance products leads to the quick expansion of its market shares, with its dominant market place marked by the exceeding premium income. The R&D technique of innovative life insurance products has shifted from the pricing mode based on “three rates”. On the contrary, it transfers the risk of assumed expense rate to policy holders and its profit model shifts towards charging intermediary business fees and investment revenue sharing. Thus it pays more attention to preservation and appreciation of cash value of policyholders and investment returns. New products are more complicated due to multiple actuarial discounts. This kind of life insurance has apparent differences from security-based and deposit-based life insurance in product composition, cost assignment, management philosophy and operating principles. So the premium income, which is seemingly the same, will have significant distinctions when it refers to the income tax base.The current social security system is hardly able to satisfy the diverse and significant demands for insurance under the ongoing development of market economy. Besides the basic coverage by social security, commercial life insurance can provide coverage that meets individual needs. Aiming at the status quo in China, commercial life insurance, as a flexible and highly customized means, serves as the solution to the various demands from families, employees and individuals. The practical goal is the same as social security, yet it offers a higher reimbursement. Previously, commercial life insurance is considered to be a complement to the social security system, but as the economy develops, it becomes an indispensable support to the society. In the future, it will gradually evolve into the major carrier of individual and household commercial insurance coverage, an important supplier of corporate pension insurance and an active participant in the marketization of social security system. Therefore, modern commercial life insurance should not be seen simply as a profit-oriented commercial activity, since, under market economy, it features a sense of social security more than any other commercial activities.However, the study on the income tax system of the commercial life insurance is rather behind the pace. Firstly, previous researches are limited to the industry’s perspective: focusing on tax reduction and exemption, but omitting tax equity. Secondly, the scope is either too large to differentiate life insurance from property insurance and personal insurance, so that the difference in operation and source of profit are not reflected in taxation, or too small to include the difference within life insurance, that the taxation is not comprehensive. Thirdly, on tax equity, previous researches have only studied the negative influence of unfair taxation only on product innovation of life insurance, not on capital flow that deteriorates stability. Fourthly, the study on the principle of practical taxation has provided a sound theoretical foundation, but the results are not applied to life insurance yet, and practice details, especially on the difference between different types of products, are needed.Therefore, there are several issues existing in current life insurance tax system, which include: the differences between life insurance products are not fully considered when designing the tax system, which turn out to be lake of differentiation; the tax system is not fitted to the uniqueness of life insurance product, resulting in problems such as double taxation. Fundamentally, the problem lies in the lack of understanding of the characteristics and status of life insurance among the policy makers and the lack of unbiased view among the participants in life insurance industry.Furthermore, based on the need from the principles of practical taxation, the study approach adopted in this paper divide the income tax in life insurance industry into three types, according to source of profit, risk management, savings and investment, respectively. On cross analysis of the purpose of purchase and the source of profit, the problems in current tax system are sorted out in order to apply the principles of tax law later on.In the comparison with other countries, the tax system in the United States stands out due to the differentiation it has on various conditions, including different reductions according to company sizes and progressive tax on different insurees’ income, which objectively reflects the demographics on income tax and helps social justice. On the other hand, reductions are detailed enough to focus on different types of insurance and characteristics of products, reflecting the principle of practical taxation. The tax system in United Kingdoms, however, reflects the characteristic feature of capital export among the British life insurance companies, mainly in the constraints on the domestic and overseas branches. Since there are quite a few small life insurances to fill up the market, to encourage their developments, low income taxes are implemented. As for the insuree, it adopts about the same policy as United States, except for even higher adjustments for high income class. On types of insurance, reductions are only made to pension products, which reflects that life insurance market in United Kingdoms are relatively mature that the social stabilizing effect of pension product is valued by the government. The life insurance market in Japan is characterized by market maturity, a large number of companies, a high insurance penetration and a high insurance density. The tax system rather truthfully reflects the market and cultural atmosphere. Due to the intense competition in the market, where exists a large number of powerful companies, a rather high income tax and a severe pre-tax deduction are applied to spur the quality of the companies in the market; with a similar savings habit to China, the reductions on insuree reflect this cultural aspect, promoting pension and savings plans in advance with commercial life insurance, while a clear tax system promotes social justice.Under the trend of integrated financial services, there is business overlap among life insurance, stocks and banks. This paper will further divide life insurance products and make comparisons on the similarities of bank, stock and insurance products after removing the different parts.In comparison with otherfinancial industries, the lack of differentiation in reductions is another result of the incomprehensive design in tax system; the impact of extracting total reserves from taxed profit and outdated accrual rate in commission, which are against the principles of practical taxation, are evaluated, i.e. the tax base for commercial life insurance is too high to maintain tax equity. Through a further empirical research in chapter 5, the difference is presented quantitatively. For a random chosen 40 year-old male insured with a 10-year unit 1-yuan death insurance, the sales tax turns out to be 50 times what it should be, and 125 times what it would be for a same amount bank business; and the income tax is also higher than the other two.Under the spirit of the tax law, the author proposes the principles of reform in life insurance income tax system, which includes: the principle of promoting national economy, where it should help commercial life insurance fulfil the role in ensuring economy, optimizing economic development and assisting social management; the principle of promoting commercial life insurance market; the principle of adapting to China’s social economy development; the principle of according with the principle and objective of China’s tax policy; the principle of combining with the insurance supervision system. Based on these principles, suggestions are as followed: implement income taxation on survival benefit, death benefit, and especially on investment type insurance; clarify the pre-tax deduction on insuree and adopt tax deferral on certain types of insurance. The goal is to, on the basis of a just tax system, facilitate national economy development, promote financial market, balance civil income and stabilize social status.This paper focuses on two research thinking and two research objects.1. Two research thinkingThe first is to start from the specificity of commercial life insurance, which brings about its distinctive tax system, and analyze the consequent problems and the underlying causes.The second is to compare the income tax of life insurance2 with that of banks and stocks in the context of financial integrated management and compare the income tax of life insurance in China with another three countries.Finally, it offers suggestions for developing policies on commercial life insurance tax in China.2. Two research objectsFirst, by comparing the income tax base of operating the same amount of capital by three different kinds of enterprises under the same tax law, we can draw conclusions on whether the tax is fair to all, and provide theoretical basis for policy reform.Second, by comparing the investors who buy financial products in these three kinds of enterprises and the income tax base when buying the same amount of investment and gaining the same profits and combining the first mainline, we can offer suggestions for tax reform with the principle of substantial tax levy.This paper has 7 chapters and 3 parts.The first part is theory analysis, including Chapter 1, 2,.Chapter 1 is introduction, which brings about the background and significance of the topic, the train of thought and concept definition. Chapter 2 analyzes the distinctiveness of the income tax of commercial life insurance in China from two aspects: the distinctiveness of commercial life insurance in China’s market economy and the distinctiveness of various kinds of legal relations in current tax system; and discusses the problems and causes of commercial life insurance income tax system.The second part includes comparison and analysis, which are Chapter 3,4.Chapter 3compares three typical countries and discusses how they address the contradiction between the universality of tax law and the specificity of insurance industry and finds solutions. Chapter 4 analyzes the disparity of the unified tax system in the three financial sectors through vertical comparison among bank, stock and insurance, thus discovering problems and causes. Chapter 5 adopts a model for theoretical deduction, and introduces the China Life Insurance Mortality Table to calculate the results for comparison.The third part is suggestions for policy making, which is Chapter6, 7.Through the analysis, discussions and proof-test in the 5chapters above, chapter 6 expound and prove, under the basic theories of tax law, the adequateness of principles of tax equity and taxation on tax load, in order to provide theoretical proof for suggestions in chapter 7. Chapter 7, though theoretical construct, proposes the performance evaluation principle for life insurance income tax reform, and, under such framework, offers suggestions for current tax levy system.
Keywords/Search Tags:commercial life insurance, income tax, tax base, different insurance types
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