Nigeria: Nigerian Insurance Industry – Achieving Tax Neutrality To Attract The Needed Investments

Last Updated: 8 November 2018
Article by Chinedu Ezomike and Samuel Bamidele
Most Read Contributor in Nigeria, September 2019

The Insurance industry is a very important part of any economy as it generally acts as a shock absorber for businesses. Insurance is a key risk management tool which enables businesses hedge against the potential risk of a loss. This helps to reduce uncertainties and improves the chances of survival for businesses. In addition to protecting businesses from risks, the Insurance industry also contributes to the economic development of a country by guarantying stability, generating long-term financial resources for investments and encouraging a savings culture.

Unfortunately, the Nigerian Insurance industry has not performed optimally thereby denying the country the above benefits. The level of investments in the sector is inadequate as the insurance penetration rate is still below 1% compared to the penetration rate of about 16% for South Africa. In terms of GDP contribution, the sector accounts for less than 1% of Nigerian GDP while in South Africa, it accounts for 17% of the GDP. Hence, there is room for substantial growth in the industry and efforts should be made to attract the much-needed investments.

While there are myriads of factors adversely impacting the industry, one of the major challenges is the unfair tax regime under which the Nigerian insurance businesses are taxed. The existing tax framework is discriminatory and non-neutral, thereby making the industry quite uncompetitive compared to their counterparts in their financial services industry and other jurisdictions.

The importance of tax neutrality

There is a positive correlation between the level of tax neutrality and inflow of investment, as it reflects the level of competitiveness of an economy. If due to distortions in the tax system, economic decision makers view an industry/jurisdiction as tax advantageous compared to another industry/jurisdiction, investments will be directed away from the unfavorable industry/jurisdiction, thereby leading to stunted growth. This explains the current effort by various international organizations to achieve tax neutrality in the taxation of capital, consumption and income in cross border transactions.

Taxation of insurance businesses in Nigeria

In Nigeria, insurance businesses are licensed as General Insurance, Life Assurance or Reinsurance business. The major income of an insurance business is the premium paid by the insured entities. Aside the normal business expenses which are deductible from income, insurance companies are required to make provisions for certain technical reserves such as; unearned premium, unexpired risks, outstanding claims, claims incurred but not reported, contingent and statutory reserves prior to determining the net profit for the period.

Section 16 of the Companies Income Tax Act (GITA) provides for the taxation of insurance businesses in Nigeria. The section requires that the insurance companies should file separate tax returns for each class of business, in line with the provisions of the Insurance Act which requires separate books of account to be kept for each business. Consequently, composite insurance companies are required to file two separate tax returns; one for Life and the other for the General business.

Restriction of deductible expenses

Based on the GITA, the determination of taxable profit for a General Insurance business requires that allowable deductions are restricted to 25% of the total premium for the period. This contradicts the provisions of Section 24 of CITA which provides that all expenses that are wholly, reasonably, exclusively and necessarily incurred for a business should be deductible. This unfair provision restricts the deduction of validly incurred expenses and puts insurance businesses at a disadvantage when compared to businesses in other industries that are allowed to fully deduct their expenses. The impact of this provision is that insurance companies are unable to deduct critical business expenses such as claims, business acquisition and maintenance expenses, as well as technical reserve, which they are legally required to be provided for in their books.

Special minimum tax regime

CITA provides for a special minimum tax regime, for both general and life assurance businesses which is quite different from the minimum tax applicable to businesses in other industries. Specifically, Section 16 of CITA, requires insurance companies to have a minimum total profit of 15% of total premium earned and 20 % of gross income for general and life businesses, respectively. This results in a minimum turnover tax of 4.5% and 6%, respectively, when the 30% income tax rate is applied. This is quite excessive when compared to the minimum tax rate for other companies.

Restriction on carry forward of tax losses

The period for carrying forward unrelieved tax losses of insurance companies is currently restricted to four (4) years. A similar provision which used to apply to companies in other industries was expunged in 2007, but this was inadvertently retained for insurance companies. The current CITA Amendment Bill before the National Assembly (NASS) seeks to, amongst other things, eliminate this provision. However, the Bill is yet to be considered by the NASS and ii is unclear when it will be given become effective.

Practices in other jurisdictions

A review of the taxation of insurance companies in other jurisdictions show that they do not suffer such discriminatory provisions as their Nigerian counterparts. None of the jurisdiction reviewed restricts expenses in the manner prescribed in Section 16 of CITA.

In the United Kingdom for example, the deduction of expenses by Insurance businesses follow the general rule of tax deductibility. Business acquisition expenses and provisions for technical reserves such as; unearned premium reserve, outstanding claims, claims incurred but not reported and unexpired risk are generally tax deductible. Additional measures introduced through the General Insurers' Technical Reserves (Appropriate Amount) (Tax) Regulations 2009 requires the companies to give a confirmation to Her Majesty's Revenue and Custom that the provisions made in the accounts are not excessive. The confirmation is supported by an opinion in writing from an actuary or any other suitably skilled person.

Similarly, in South Africa, the deduction of expenses by General Insurance businesses also follow the general tax deductibility rules. Provisions for technical reserves are all allowable tax deductions. Technical expenses such as acquisition expenses and loss adjustment expenses incurred in relation to the insurance business are all allowed as tax deductible. Losses of previous periods are allowed to be relieved against current profit indefinitely and no minimum tax provision applies to companies in the sector.


The Nigerian insurance industry needs to attract the desired level of investments to maximize its potential and be in a position to play its vital role in supporting the rest of the economy. This can only be achieved if the industry can be made very competitive by addressing the myriad regulatory challenges affecting the industry. It is important that the persistent tax issues hampering the development in the industry are urgently addressed such that the tax regime is not discriminatory. The laws governing the taxation of the industry should be urgently reviewed to reflect international industry best practice for taxation.

Originally published by Business Day, 25 September 2018.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions