950820

IAP seeks tax

exemption on

bonus shares

RECORDER REPORT

KARACHI: The Insurance Association of Pakistan (IAP) has urged the Ministry of Finance not to tax bonus shares issued by insurance companies for the period ended 30th June, 1995.

The IAP Chairman, Munaf Osman Kothawala, in a letter to the Secretary, Ministry of Finance, said that the Incomex Tax Department on the one hand has taken the stand that income declared to the Controller of Insurance is to be taken as income from the business of insurance and on the other hand wanted to add to the income the amount of bonus shares which has not been declared as income to the Controller of Insurance.

He said that further the bonus shares are issued against the profits which have already been taxed. Moreover the issuance of bonus shares is an activity which increases the capital base of the company and is not income derived from business. The shareholders of an insurance company thus stand to lose as compared to shareholders of any other company in the matter of after tax profit.

He has pointed out to the Finance Secretary that the Income Tax Department is of the view that the second schedule granting exemption to various items is not applicable in case of insurance companies, whereas there is nothing in the law from which such inference or interpretation could be drawn.

He said that Income Tax Department has recently raised a new issue of taxing bonus shares issued by the insurance companies during the last four years.

The IAP chairman has also requested the Secretary Finance to direct the Income Tax Department to tax the dividend income of insurance companies at the same rate as is being charged from other public companies.

He said that presently insurance companies are being harshly treated and discriminated against in being subjected to tax on dividend income at the full tax rate as against concessional reduced rate of tax applicable to other public companies on dividend received by them.

He also 'demanded of the Ministry of Finance to treat capital gains as exempted income. He said that under the provisions of Income Tax Ordinance, 1979, capital gains realised by any assessee is exempt. But the case of insurance companies is being interpreted differently by the income tax department on the plea that the income from business of insurance is the icome declared to the Controller of Insurance.