kirti sharma
Post on 07-Apr-2018
225 Views
Preview:
TRANSCRIPT
-
8/6/2019 kirti Sharma
1/26
Return to Tutorial Page
Accounting and taxationAccounting and taxationaspect of insuranceaspect of insurance
BYBY
KirtiKirti SharmaSharma
Slide 1Slide 1
-
8/6/2019 kirti Sharma
2/26
Return to Tutorial Page
State Insurance History
1868 2% gross premium tax on foreign
insurance companies
1872 domestic companies were included 1983 tax administration transferred from
Department of Commerce to Department of
Revenue, Insurance Premium Tax Section of the
Corporate Income Tax Division
1986 transferred to Special Taxes Division
Insurance Taxes The Governors 21st Century Tax Reform Commission
-
8/6/2019 kirti Sharma
3/26
Return to Tutorial Page
Taxes and Surcharges (CY2007)
Insurance Taxes The Governors 21st Century Tax Reform Commission
-
8/6/2019 kirti Sharma
4/26
Return to Tutorial Page
Premium Tax
Property and Casualty, Title and Risk Retention
Groups
1%, 1.26% or 2% of premiums
Life Insurers
2007 1.75%; 2008 1.625%; 2009 1.5%
Township Mutual Insurers
1%
Insurance Taxes The Governors 21st Century Tax Reform Commission
-
8/6/2019 kirti Sharma
5/26
Return to Tutorial Page
Types of Tax Subsidies for Health CareTypes of Tax Subsidies for Health CareUnder Current LawUnder Current Law
Health insurance subsidiesHealth insurance subsidies
Employer contributions for insurance are exempt fromEmployer contributions for insurance are exempt from
taxes for employeestaxes for employees
Section 125 plans subsidize worker contributionsSection 125 plans subsidize worker contributions SelfSelf--employed can deduct premiumsemployed can deduct premiums
Subsidies for outSubsidies for out--ofof--pocket health carepocket health careexpensesexpenses
Health Savings Accounts (HSAs)Health Savings Accounts (HSAs)
Health Reimbursement Arrangements (HRAs)Health Reimbursement Arrangements (HRAs)
Flexible Spending Accounts (FSAs)Flexible Spending Accounts (FSAs)
Deduction for expenses >7.5% of incomeDeduction for expenses >7.5% of income
Slide 2Slide 2
-
8/6/2019 kirti Sharma
6/26
Return to Tutorial Page
Tax Subsidies for OutTax Subsidies for Out--ofof--PocketPocketHealth Spending: HRAs, FSAs, DeductionHealth Spending: HRAs, FSAs, Deduction
Health Reimbursement ArrangementsHealth Reimbursement Arrangements
Used with any type of planUsed with any type of plan
TaxTax--free contributions by employers onlyfree contributions by employers only
Flexible Spending AccountsFlexible Spending Accounts TaxTax--free employer/individual contributionsfree employer/individual contributions
Money is deducted from paycheck, lowering taxableMoney is deducted from paycheck, lowering taxable
incomeincome
Use it or lose itUse it or lose it
Deduction for medical expensesDeduction for medical expenses
Direct expenses and insurance premiumsDirect expenses and insurance premiums
Only expenses above 7.5% income can be deductedOnly expenses above 7.5% income can be deducted
Must itemize deductionsMust itemize deductions
Slide 4Slide 4
-
8/6/2019 kirti Sharma
7/26
Return to Tutorial Page
Tax Subsidies for Health Insurance:Tax Subsidies for Health Insurance:EmployersEmployers
EmployersEmployers can deduct cost of health benefits for workers (butcan deduct cost of health benefits for workers (but
not a special subsidy for health insurance)not a special subsidy for health insurance)
Employer contributions for insurance are exempt from taxesEmployer contributions for insurance are exempt from taxes
forforemployeesemployees
Benefits provided as tax free compensationBenefits provided as tax free compensation
No income or payroll tax paid by workers on value ofNo income or payroll tax paid by workers on value of
benefitbenefit
Worker contributions can be made preWorker contributions can be made pre--tax (tax (125 plan125 plan))
Taxable income is reduced by amount of contributionsTaxable income is reduced by amount of contributions SelfSelf--employedemployedcan deduct premiumscan deduct premiums
IndividualsIndividuals buying insurance on their ownbuying insurance on their own do not generallydo not generallyget subsidiesget subsidies
Slide 5Slide 5
-
8/6/2019 kirti Sharma
8/26
Return to Tutorial Page
Example 1: Modest Income FamilyExample 1: Modest Income Family(15% Income Tax Bracket)(15% Income Tax Bracket)
With TaxWith TaxExemptionExemption
(current law)(current law)
Without TaxWithout TaxExemptionExemption
(if taxable)(if taxable)DifferenceDifference
WagesWages $50,000$50,000 $50,000$50,000
Taxable income, before insuranceTaxable income, before insurance $30,000$30,000 $30,000$30,000Employer premium contributionEmployer premium contribution $10,000$10,000 $10,000$10,000
Worker premium contributionWorker premium contribution $2,000$2,000 $2,000$2,000
Wages, with insuranceWages, with insurance $48,000$48,000 $60,000$60,000
Taxable income, with insuranceTaxable income, with insurance $28,000$28,000 $40,000$40,000 $12,000$12,000Income taxesIncome taxes $3,398$3,398 $5,198$5,198 $1,800$1,800
Worker payroll taxesWorker payroll taxes $3,672$3,672 $4,590$4,590 $918$918
Employer payroll taxesEmployer payroll taxes $3,672$3,672 $4,590$4,590 $918$918
Source: Kaiser Family Foundation calculations.Source: Kaiser Family Foundation calculations.
$12,000 x 15%$12,000 x 15%
(Social Security and Medicare)
(Social Security and Medicare)
-
8/6/2019 kirti Sharma
9/26
Return to Tutorial Page
What Does the Exemption Cost?What Does the Exemption Cost?
A tax provision that acts like an entitlementA tax provision that acts like an entitlement
costs go up annually without an act of Congresscosts go up annually without an act of Congress
But, subsidies are hidden from workers and theBut, subsidies are hidden from workers and the
federal budgetfederal budget
As a result, costs can only be estimatedAs a result, costs can only be estimated
Estimated federal cost = $224.7 billion in 2008Estimated federal cost = $224.7 billion in 2008for active workers ($134.3 billion for incomefor active workers ($134.3 billion for incometaxes, $90.5 billion for payroll taxes)taxes, $90.5 billion for payroll taxes)
Slide 8Slide 8
Source: Analysis by Jonathan Gruber for the Kaiser Family Foundation; figures for 2008 for active workers only.Source: Analysis by Jonathan Gruber for the Kaiser Family Foundation; figures for 2008 for active workers only.
-
8/6/2019 kirti Sharma
10/26
Return to Tutorial Page
3 9
6 9
3
66333
+
a il n o e
vg
u
i
Pe
r
or
er
Value of the Tax Exe ption n rea eValue of the Tax Exe ption n rea eith n o eith n o e
Source: Analysis by Jonathan Gruber for the Kaiser Family Foundation; figures for 2008 for activeSource: Analysis by Jonathan Gruber for the Kaiser Family Foundation; figures for 2008 for activeworkers only.workers only.
li e 9li e 9
-
8/6/2019 kirti Sharma
11/26
Return to Tutorial Page
Arguments Made For and AgainstArguments Made For and Againstthe Tax Exemptionthe Tax Exemption
For:For:
Encourages employer coverage and poolingEncourages employer coverage and pooling
Reflects negotiated tradeoffs between benefitsReflects negotiated tradeoffs between benefits
and wagesand wages Against:Against:
Provides regressive benefits; no subsidy forProvides regressive benefits; no subsidy for
those without employer coveragethose without employer coverage
Encourages over insurance (more generousEncourages over insurance (more generous
coverage)coverage)
Provides little opportunity to control federal costProvides little opportunity to control federal cost
Slide 10Slide 10
-
8/6/2019 kirti Sharma
12/26
Return to Tutorial Page
Accounting Standards 15 (Revised)
Revised AS15 requires an approved provident
fund to be treated as a Defined Benefit Plan
however there is no clarity on getting the same
actuarially valued as the actuaries have shown
their inability to value the same.
-
8/6/2019 kirti Sharma
13/26
Return to Tutorial Page
Accounting Standards 15 (Revised)
Treatment of Transition provision in AS 15 - how should
we treat the impact of revised AS 15 pertaining to
previous years (transition proviso of AS 15). There is as
such no clarification on the treatment - whether the
same has to be adjusted below the line (through FFA) in
technical account or directly take into Balance sheet.
The question is to how it will be charged to
policyholders as if the Salary cost is being related to
Policyholders then this impact should also be taken intopolicyholders account (technical Account).
-
8/6/2019 kirti Sharma
14/26
Return to Tutorial Page
Accounting Standard 22
Should tax be an appropriation or a charge in
Policyholder account?
-
8/6/2019 kirti Sharma
15/26
Return to Tutorial Page
Accounting Standard 17
Need for a guidance note on allocation of
expenses and assets and liabilities for
preparation of segmental revenues and
segmental balance sheets. Presently eachInsurance company is using different methods
of allocation. The guidance note will help in
following uniform methods of allocation and
thus enhance the effectiveness of comparisonof financial statements of Insurance companies
-
8/6/2019 kirti Sharma
16/26
Return to Tutorial Page
Accounting Standard 19
Expert advisory opinion on Accounting for
scheduled rent increase in case of operating
lease - The opinion refers to operating leases
which are renewable after specified timeintervals at the option of the lessee. The lease
agreement provides for an escalation clause in
lease payments at each such renewal
.
-
8/6/2019 kirti Sharma
17/26
Return to Tutorial Page
Accounting Standard 19
The opinion expressed by the esteemed
committee requires that in respect of such
operating leases, lease payments must be
recognized on a straight line basis frominception of the lease. This requires the
recognition of future income / expense in the
current period, thus necessitating the creation
of liability / receivables in the initial years aslease payments are lower than expense /
income.
-
8/6/2019 kirti Sharma
18/26
Return to Tutorial Page
Accounting Standard 19
The increase in costs refers to changes on account ofinflation and does not represent structured definedpayments over a period of time. The increased costsrefer to future contingent liabilities; the recognition
of the same in current periods is inconsistent with thematching principles of recognizing income andexpenses.
It is felt that the above accounting treatment hassignificant taxation impacts on account of TDS and
Service Tax. Further the treatment doesnt reflect atrue and fair presentation of costs.This position isrequested to be revisited.
-
8/6/2019 kirti Sharma
19/26
Return to Tutorial Page
Disclosure of non financial data
Non financial data provides the users offinancial statement with additionalinformation and increases the value of
financial information.Thus should bemandated, eg:
Burn rate
Value of New Business
Persistency No. of branches
No. of agents
-
8/6/2019 kirti Sharma
20/26
Return to Tutorial Page
Enhancing the credibility of theExternal Financial Information:
Auditing Issues Joint Audit:
Centralised accounting models
Varying materiality definitions
Overlap of coverage
Difficulties in tax audits
Limitation of 2 audits
Not conducive to development of specialists
-
8/6/2019 kirti Sharma
21/26
Return to Tutorial Page
Auditing Issues
Actuarial Numbers
Actuarial liabilities certified by appointed
actuaries
Audit coverage restricted to confirmation ofactuarial assumptions
Not covered by an independent audit
-
8/6/2019 kirti Sharma
22/26
Return to Tutorial Page
Auditing Issues
Guidance Note on Insurance Audit: Need for update
To include a more detailed guidance on
evaluation of actuarial estimates
Preparing auditors to meet the challenges
placed by new accounting pronouncements
AS-30, AS-31, AS-15
IFRS
-
8/6/2019 kirti Sharma
23/26
Return to Tutorial Page
Auditing Issues
Clarifications required in respect ofregulations
Certification of management report
Reporting on contraventions of the provisions of theInsurance Act, 1938
Whether term deposits with banks are to be
reckoned for the purpose of computing limits for the
industry sector to which the investee belongs
-
8/6/2019 kirti Sharma
24/26
Return to Tutorial Page
Auditing Issues
Cash flow statements
Could an option be given to insurance companies topresent cash flow statements using the indirect
methodSegment reporting
Segments defined under the regulations are notnecessarily the manner in which insurance
companies organise their operations
-
8/6/2019 kirti Sharma
25/26
Return to Tutorial Page
Auditing Issues
Interim financial reporting:
Half Yearly / Quarterly financial reports which couldbe subjected to a limited review could assist insurancecompanies in meeting their listing requirements.
Audit of internal control systems
Currently restricted to a statement in themanagement report
Assertion on design and operation of internal controls
Separate certification by auditors
-
8/6/2019 kirti Sharma
26/26
Return to Tutorial Page
Thank you.
top related