HEAD of the umbrella body for life insurance companies here warned yesterday that their sector could be headed for “devastation” if the government implements the recommendation of a parliamentary committee to double the tax on premium and investment income.

In fact, Earl Moore, who heads the Jamaica operations of the Trinidadian-owned Guardian Life, warned that Caribbean firms which have been behind the resuscitation of the island’s insurance sector may be driven away from the island if the tax hike is imposed.

“The major life insurance companies are Caribbean owned, not Jamaican owned,” Moore told the Observer. “I cannot see the owners sitting down and accepting the fact that these companies are going to go belly-up after they have invested so much money in them.

“Having attracted these companies to Jamaica, we want to tax them and take away their profits. The owners of these companies will have to take a decision because, on top of it all, the cost of operating in Jamaica is even more expensive than normal.”

In his April budget, the finance minister proposed applying a 15 per cent general consumption tax (GCT) to premiums paid on insurance policies as part of his efforts to raise an extra $14 billion to help meet the government’s planned expenditure of $261.3 billion, and bring the administration’s deficit to three per cent of gross domestic product. GCT was to earn more than $8 billion or about 57 per cent of the additional taxes.

Davies, in the face of lobby from several quarters, made concessions on some of the products and services that would be subject to the consumption tax, and Parliament’s tax committee, in a report tabled in the House on Wednesday proposed additional roll-backs.

In the case of the life insurance sector, it recommended that Davies drop the GCT on payments for life policies, but apply it on health premiums.

In exchange, however, the committee recommended that the income tax companies pay on premium income move from 1.5 per cent to three per cent, while that on investment income rise from 7.5 per cent to 15 per cent.

It is expected that Parliament will debate the committee’s recommendations next week — and possibly approve them.

Moore said that companies paid these taxes as well as corporate taxes on profit.

“We got a concession in that the committee recommends not putting GCT on insurance premiums paid by the consumer,” Moore said. “But to double the income tax on premium income… and to double the income tax on investment income will devastate the insurance business.”

Moore is the president of the Life Insurance Companies Association (LICA), which speaks for the industry.

He said that the impact would be felt not only by the traditional life insurance companies like his own and Life of Jamaica, but also bank assurance businesses such as NCB’s “Omni” and Scotiabank’s “Scotia Life”.

“The bulk of income for the bank assurance people is investment income and the proposal is to double the tax on that income,” Moore said. “For them to survive, they will now have to look at taking drastic steps to cut costs and reducing interest rates, which will be dangerous.”

Moore also complained about the recommendation to apply GCT on health premiums for new policies, effective June 1, 2003 and on the renewal date of existing policies.

“When you put GCT on health insurance premiums and then apply GCT to a wide array of drugs, you are double-taxing the consumer,” he said. “In most cases, the tax on health premiums will be on the consumer plus an additional burden on employers who subsidise these health plans.”

Jamaican insurance companies were part of the financial sector collapse of the mid-1990s when firms, that used short-term cash, borrowed from related banks to invest in long-term instruments found that the market had fallen out of real estate. A sharp tempering of inflation also meant that assets were not being revalued at the past rate.

At the same time, the liquidity of the insurance companies fell under pressure as people who had invested heavily in equity-linked policies cashed in their policies in the face of a soft stock market.

The government’s debt resolution company, Finsac, moved in to shore-up the industry and later sold most of the acquired assets to Trinidadian Guardian Life and the Barbadian firms, Sagicor (formerly Barbados Mutual) and Life of Barbados, which together own Life of Jamaica.

In recent years the local industry has shown a strong recovery and last year reported gross premium income of $8.4 billion, from $4.3 billion in 1996.

But Moore argued that prices were rising in the sector, which would weaken these gains.

“Inflation, devaluation and the GCT have increased all our costs considerably,” he said. “We are in very serious problems and I don’t think the minister of finance and his team really understand the depth of the problem.”

The tax committee, too, he suggested had failed to listen to the industry.

“We have made our presentation and it seems they are not listening but we are still pursuing it,” he said.