Unfair Tax Treatment of Insurance Agents in Pakistan!
Insurance Agents are one of the most hard working people. Especially the ones who work on commissions only. Which is the vast majority of them.
They invest time and money, before they make a single Rupee. Just as any other Freelancer, Entrepreneur or a Business Person.
However, there is a huge difference in how the Insurance Agents are treated. Business Individuals & Freelancers are allowed to deduct expenses from their income. The money they earn or receive is called Gross Income. And after they deduct their expenses it is called Net Income.
Net income is the money that they can actually spend. And this is the amount they are taxed on. Same goes for Freelancers & other Self Employed individuals.
The whole entire concept of Income Tax is based on income. Income is taxed. Not Expenses or Losses.
For some crazy reason, expenses are also taxed for Insurance Agents in Pakistan. And nobody is doing anything about it. Not even the rich and mighty Insurance Companies.
How in the world can Insurance Agents have expenses? Good question.
Let’s start with recruitment & training. Before they even begin, they must be licensed and trained. The Insurance Company does not send a tutor at their expense. It is the Insurance Agent who has to go and be trained. They attend meetings and seminars. It requires transportation. With the rest sing prices of petrol, that’s neither free nor cheap.
Let’s move on to sales. Clients normally don’t line up at their homes to fill out lengthy applications and hand out their money.
It is the agent who has to travel to meet potential clients. Therefore, it is the agent who has to travel, with no guarantee that the person will even be there as agreed. Buying is a distant hope.
The person who referred the potential client may have to be paid by the agent. Not the Company.
It’s a normal practice in Pakistan, that even the client demands part of all of the commission.
Transportation, advertising, buying leads, paying for referrals, paying clients part or all of their commissions, buying lunches and dinners, buying gifts and on and on. After all this the Government also wants up to 24 % of the Gross Commissions. So unfair!
They do all this so their clients & their families have financial security, The companies they sell for get fatter & richer. Government can also join in and collect their baths in the form of tax.
How does it all sound? Insurance Agents are Professionals like Investment Advisors, Doctors & Lawyers. And must be treated as such. What they serve is priceless for people when they are in need.
These other professionals get to enjoy Income Tax Free income up to six Lakhs. While the Insurance Agents are taxed even in the first Rupee. Not just taxed but taxed heavily. If this is not enough, they are taxed on Gross Income and not Net Income like others.
If you want to know how much they contribute to the society, economy and the Government. Look at the numbers of total premiums sold each year by then. Total claims paid to the clients each year. The numbers are so huge & mind blowing.
Should this abuse be allowed to continue. It won’t make a difference to anybody, except the Insurance Agent.
If the Insurance Agents don’t get together and raise their voice & demand justice, nothing will change.
To address this disparity and create a fairer tax environment, the following changes must take place:
Taxation on Net Income:
Similar to individual businesses, Freelancers & other professionals,insurance agents should also be allowed to deduct legitimate business expenses from their gross income before calculating their tax liability. This will ensure they are taxed only on their net incime, a more accurate reflection of their true earnings.
Inclusion in Individual Business Tax Slabs:
Insurance agents should be categorized under the existing tax slabs applicable to individual businesses. This will bring them in line with similar professions and ensure they pay taxes commensurate with their income level.
Access to Exemptions:
Currently, individual businesses enjoy certain tax exemptions and benefits. Extending these same benefits to insurance agents will create a level playing field and incentivize them to operate more efficiently.
Benefits of a Fairer Tax System:
Implementing these changes will have several positive consequences:
Growth of the Insurance Industry:
A fairer tax regime will encourage more individuals to pursue careers in insurance, leading to a more robust and competitive industry. This will benefit consumers by providing them with a wider range of insurance products and services.
Increased Revenue Collection:
A fairer system can incentivize agents to focus on long-term client relationships and ethical sales practices, potentially leading to higher overall sales and, consequently, increased tax revenue for the government
Improved Professionalism:
By alleviating the financial burden, agents can invest in professional development and training, leading to a more knowledgeable and ethical insurance workforce.
Reduced Unemployment:
More and more individuals would have a shot at making a living. Reversing unemployment.
Conclusion
The current income tax treatment of insurance agents in Pakistan is abusive and discourages the growth and professionalism of the industry. Aligning their tax structure with individual businesses is a necessary step towards creating a fairer and more sustainable environment for both insurance agents and the industry as a whole. By implementing these changes, the government can foster a thriving insurance sector that plays a vital role in Pakistan’s economic development and financial security.