Insurance Companies In China Tax System To Improve The Development Of

Taxation of insurance companies has long been one of the more problematic areas of taxation for tax policy makers. The unique nature of insurance companies means they should develop under a separate regulatory regime from other financial institutions. Based on complex actuarial computations, their accounting systems are unique, so it's difficult to levy taxes on them appropriately. As a result, the taxation of insurers varies widely across countries and different from the tax regime to other industries in a country.Inefficient taxation of insures will hinder the development of insurance industry, which is also one of the issues to be solved urgently in China. Standing on insurance companies, the paper begins with a survey of their taxation system, then the international comparison of taxation, accordingly detailed suggestions and related issues emerging under the background of economy globalization are presented in the following sections.The paper is composed of preface and contents that include four sections. Sectionâ… gives a brief introduction to taxation system of insurance companies in China. By reviewing and analyzing drawbacks of income tax and business tax turn up as follows: tax base is not reasonable, it violates the tax principles that income of life insurers is tax-free, different income tax treatment runs counter to equity, lower deductible payroll makes the insurers' tax burden heavy, no catastrophe reserves is deductible, high and single business tax rate does not conform to the characters of lines of business. All of these decreased the capital accumulation of insurers and disrupted the competing order in insurance market.Section â…¡looks in detail at the insurance income tax and premium tax (business tax) across countries. As far as the income tax is concerned, taxation of non-life insurers ifs less complex than that of life ones, the difference in complexity can be explained by the element of savings inmost life insurance products sold worldwide and the lack of it in non-life insurance products. Governments generally tax non-life insurance companies as other corporations. The tax rates ordinarily are the same as those applicable to other corporations and the same as life insurers. Occasional exceptions countrywide to this generalization apply to mutual insurers, small-sized ones and pension lines. Accordingly conclusions are drawn, life insurers should not be tax-exempt any more, tax preference should be given to the small-sized insurers, catastrophe reserve is allowed to establish.Premium tax is based on the premium income in according to the jurisdiction and the types of risk insured, in most cases, its rate id generally low. Most countries apply premium tax on non-life insurance policies, but not on life insurance ones, as life insurance policies are often pension or savings type products, where there is a tax, the rate is usually low and applies to ordinary life polices, not annuities. Premium tax does not apply to reinsurance on the basis that the direct insurance writer has already paid to the tax. Based on all-above mentioned, the writer gets a point that the business tax rate in China should be modified according to the types of risk insured besides a new tax base.Section â…¢ explores how to perfect the taxation system of insurers. The related determining factors are discussed first as follows: 1. General purposes of taxation, the insurance tax policy must be the combination of raising revenue, promoting economic goals and social goals. 2. Desirable traits of tax policy, an ideal tax policy should possess these traits, equity, neutrality and simplicity. 3. Incidence of insurance taxation, in the final analysis, the insureds ultimately bear the economic burden of income tax and business tax although the insurers pay them. 4. The impact of backward insurance industry, for which it's necessary to protect national insurance industry. 5. The demand of economic globalization and WTO, we must modify and cut off the sections in existing taxation system that are not in line wi...