Page 1129 - SAIT Compendium 2016 Volume2

EXPLANATORY MEMORANDUM ON THE TAXATION LAWS AMENDMENT BILL, 2015
IV. Effective date
The proposed amendments will come into operation on the date on which the Insurance Act 2016 comes into operation and apply in respect of years of assessment ending on or after that date.
3.10 INCLUDING MICRO-INSURANCE BUSINESS IN THE TAXATION OF SHORT TERM INSURANCE BUSINESS
[Applicable provisions: Sections 1 (Insurance Act de nition) and section 28]
I. Background
The Insurance Act, 2016 that will come into operation during 2016 introduced the provisions of micro-insurance business that will be supervised by the Financial Services Board. Micro- insurance is intended to cater for the low- income population such that good value and low cost products that are appropriate to the needs of low-income consumers are issued by a variety of market players. Insurers registered under the Long-term Insurance Act, 1998 (Act No. 52 of 1998) or the Short- term insurance Act, 1998 (Act No. 53 of 1998) may offer the products of micro-insurance business. According to the draft Insurance Bill, micro-insurance business may be conducted in the following classes and sub- classes of insurance business in the non-life insurance business (short-term insurance):
i. Motor;
ii. Property;
iii. Agriculture;
iv. Consumer Credit; and v. Accident and Health –
in respect of which the aggregate value of the insurance obligations under the policy do not exceed the maximum amounts prescribed.
In addition, micro-insurance business may be conducted in the following classes and sub- classes of insurance business in life insurance business (long-term insurance):
i. Risk;
ii. Credit Life; and
iii. Funeral –
in respect of which the aggregate value of the insurance obligations relating to each insured under the policy do not exceed the maximum amounts prescribed.
II. Reasons for change
The provisions of the Act speci cally cater for short-term insurance and long-term insurance separately. As speci ed in the draft Insurance Bill, micro-insurance business may conduct business as a short-term insurer or long-term insurer. This compels a change in the Act to be aligned with the draft Insurance Bill.
III. Proposals
It is proposed that micro-insurance business as de ned in the Insurance Act, 2016 be deemed to be a short-term insurer for purposes of the Act.
IV. Effective date
The proposed amendments will come into operation on the date on which an insurer quali es as a micro insurer as de ned in the Insurance Act 2016 and apply to years of assessment ending on or after that date.
3.11 REFINEMENT TO RISK INSURANCE BUSINESS OF LONG TERM INSURERS
[Applicable provisions: Section 29A(1) and insertion of new subsection (13B) in section 29A ]
I. Background
The 2014 Taxation Laws Amendment Act introduced a fth fund known as the risk policy fund (‘RPF’) in which risk policies issued by the long-term insurer during the year of assessment commencing on or after 1 January 2016 should be located. A risk policy is de ned as a policy issued by the insurer during any year of assessment of that insurer commencing on or after 1 January 2016 under which the bene ts payable cannot exceed the amount of premiums receivable, except where the policy bene ts are solely payable due to death, disablement, illness or unemployment and excludes a contract of insurance in terms of which annuities are being paid.
II. Reason for change
A. De nition of Risk Policy
Some insurers are of the opinion that the current de nition of ‘risk policy’ is too restrictive as the word ‘solely’ in the current de nition seem to exclude pre-dominantly life products which have small investment bene ts (e.g. policy that has savings element).
B. Once-off election
Some long-term insurers are encountering challenges with regard to risk policies on accounting systems and internal processes where the insurers amongst others have to:
1. for accounting purposes, distinguish between premiums that are received for risk business prior and post years of
assessment commencing on or after 1 January 2016;
2. amend systems to allow the separation of risk business prior and post years of assessment commencing on or after
1 January 2016.
SAIT CompendIum oF TAx LegISLATIon VoLume 2 1121