A Taxing Issue

As budget time approaches in Newfoundland, the Insurance Bureau of Canada (IBC) and the Insurance Brokers Association of Newfoundland (IBAN) are reiterating their belief that the provincial government should scrap its tax on insurance premiums.

In Newfoundland and Labrador, a person or company maintaining an insurance contract related to property, risk, peril or events in the province must pay nearly 20% tax on the premium for that insurance.

While it is common practice among insurers, agents or brokers to arrange the payment of premiums with the consumer, the seller of the insurance is required to levy and remit the tax upon the full premium amount at the time of the sale, regardless of the payment terms, the Government of Newfoundland and Labrador’s department of finance says.

The provincial government in April 1997 decided to harmonize its provincial sales tax with the federal GST. But the GST is not applied to insurance premiums, and so the insurance premium tax was applied. The premium tax was raised from 11% to 15% to ensure provincial revenue was still being generated, information from the department of finance says.

TAKING ITS TOLL

The tax is not only the highest of its kind in Canada (Quebec has a similar tax that is 9% on property and 5% on auto), it is actually the highest tax of this kind in all of the G8 countries, says Don Forgeron, IBC’s Atlantic representative. He says the issue is not the existence of the tax, but rather the fact that the high level of the tax creates an imbalance.

“For every dollar of home, car and business insurance [consumers] buy, the provincial government charges them 19.6 cents in tax,” Forgeron says. “This adds up to [Cdn]$80 million annually. That really cries out for addressing, just because of the incredible imbalance it creates for local businesses that, for example, are competing with businesses in other jurisdictions that pay nowhere near the extra 20% on the insurance products they purchase.”

Robert Dunne, president of IBAN, resents the situation in which the tax puts brokers. “We’re daily having to justify that tax when it’s something that we have no control over,” he says. “We understand it’s an issue we have to fight [for] on behalf of consumers. If we can find some sort of relief there, then we can better address our insurance concerns and assure [consumers] that we’re fighting the issue on their behalf.”

The issue is not new, in the sense that IBAN and IBC have been lobbying to reduce and/or eliminate the tax for the past decade. But this year, other voices are chiming in with their support, Forgeron and Dunne say.

“This has been on our radar screen for many years in Newfoundland and it’s a constant theme in our pre-budget submissions,” Forgeron says. “I think what’s different this time around is that other voices are being heard now, not just [those of] the industry. Small businesses, the volunteer sector in Newfoundland, the Chamber of Commerce have all come out opposed to the tax and are calling on the government to do something.”

Dunne says the Atlantic representative for the Canadian Federation of Independent Businesses has written to the finance minister, as well as to committee members representing the superintendent of insurance for the volunteer/non-profit sector.

“I myself, as a representative of IBAN and all of the insurance brokers of Newfoundland, have written the minister of finance as recently as January,” Dunne says. “So all of these groups have written in the past 60 to 90 days to the minister expressing all of their concerns about the tax and requesting its elimination.”

Forgeron believes the province has a number of means at its disposal to deal with the premium tax. “They could consider a phase-out over a period of time,” he says. “They could also consider targeting specific sectors, for example, exempting small businesses and the volunteer sector,” he suggests.

LEVELLING THE PLAYING FIELD

“Our key message to the government is: the relative tax burden in Newfoundland and Labrador is completely out of step,” Forgeron says. “Not just with other jurisdictions in Canada, but also with other jurisdictions around the world. Something needs to be done to bring it back into line.”

The provincial government declined to comment on whether or not it intends to reduce or eliminate the tax in this spring’s budget, but Dunne remains pessimistic.

“We feel the provincial government is going to ignore it at this time,” he says. “They’re likely going to take a stand that if they do anything on reducing the taxes, then it’ll mean a reduction of provincial revenue. And then there would have to be a reduction in services or some other way to find the tax to make up the lost revenue.”

At this time, IBAN is calling for the elimination of the tax. “We have also requested that the government come to the table and talk to us about that, but they have yet to respond to our written request,”Dunne says.

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The tax is not only the highest of its kind in Canada, it is actually the highest tax of its kind in all of the G8 countries.