Tanzania Revenue Authority: Institute of Tax Administration

TANZANIA REVENUE
AUTHORITY
INSTITUTE OF TAX ADMINISTRATION
PGTM
INCOME TAX LAW 11
INSURANCE BUSINESS
Presented by:
Mrs. Dafroza R. Tairo
Learning Units
 Overview of General Insurance Business
 Overview of Life Insurance Business
 Treatment of proceeds derived from
insurance in calculating income
2
General Insurance Business
 Section 58 of the Income Tax Act provides the
manner of accounting for and methods of calculating
income from general insurance business activities.
 The income derived or loss incurred by a person from
conducting general insurance business shall be
accounted for separately from the income or loss any
other activities of the person.
 General insurance businesses are activities of
insurance other than life insurance business activities
3
General Insurance Business…
Section 58(1) provides that a person’s
activities in conducting a general
insurance business shall be treated as a
business separate from any other
activity of the person.
4
 All general insurance business is “short
term” in the sense that an insurer
guarantees the premium rate and other
conditions for a period of a year only, or
sometimes for a few years.
5
 Payments of premiums for general
insurance paid to and proceeds from
general insurance paid by a person in
respect of the insurance of any risk in
the United Republic have a source in
the United Republic.
6
The method of calculating income
from general insurance business
 Section 58(2) provides the method of

calculating income of general insurance
business as follows:
7
from general insurance business…
Amounts to be included:
In calculating the income of a person for a year
of income from general insurance business,
the following shall be included:
 the premiums derived during the year of
income by the person as an insurer;

 the premiums derived during the year of
income by the person as re-insurer;
8
Amounts to be included….
 proceeds derived under any contract of re-
insurance in respect of proceeds incurred

 Other amounts as provided for under other
provisions of the Act, which are, the amounts

derived by the person in conducting the
insurance business as stipulated under
Section 8 of the Act.
9
Amounts to be deducted
The deductions will include: -
 The total amount of liability incurred in respect of
premiums on reinsurance;
 The actual amount of the liability incurred in respect
of any claims during the year of assessment in

respect of that business of general insurance,
 less the value of any claims recovered or recoverable
under any contract of general insurance.
10
 Other amounts to be deducted are as provided
for in other provisions of the Act, such as
 Section 16, gifts to public and charitable
Institutions,
 section 17, depreciation allowances for
depreciable assets,
 Section 18 losses on realisation of business
assets and liabilities and
 section 19 losses from a business, which are,
discussed elsewhere under those sections.
11
 At the end of each accounting period of

such business there will be some
unexpired portion of the period of risk
for which premiums have been received
and credited in the account.
12
 Provision of such unexpired portion of the risk
must therefore be made in the account and
 is allowed in computing profits for corporation
tax purposes,
 the appropriate allowance being a question of
fact in each particular case, see case (Sun
Insurance office vs. Clark [1912] 6 TC 59.
13
 However, though this provision is an

estimate it has to be reasonable,
realistic and as accurate as possible,
based on prior years’ experience and
known current facts of the business.
14
General Note
 The taxable income arising from short term
income activities is generally calculated in the
same way as the taxable income arising from
other business activities, with premium
derived included in gross income and claims
incurred allowed as a deduction.
 However, the following characters of short
term insurance activities impose special
treatment –
15
General Note…
Income recognition rules
 Income-recognition rules must take into
account the fact that some premiums

received during a year of income will cover
risks for a period after the end of that year
(unexpired risks).
 These premiums are not regarded as earned
until the following year of income.
16
General Note…
Deduction recognition rules
 Deduction-recognition rules must take
into account the following three types

of claims that may arise during a tax
year for a general insurance business.
 The first type of claims is one that
arises and paid out during the year of

income. This is allowed as expenditure.
17
General Note…
Deduction recognition rules…
 The second type is one that arises
during the year, but that has not been

paid out as of the end of the year of
income. This claim is also allowable.
18
General Note…
Deduction recognition rules…
 The third type is claim that is unreported as
at the end of the year of income as it relates

to an event that has occurred but not
reported.
 This may be allowed under an accrual tax
accounting system on the basis that the

happening of the event crystallizes the
liability.
19
General Note…
Contingency reserves
 Insurance companies retain a contingency
reserve to meet the exceptional level of
claims that may arise from a catastrophe.
 Tax accounting is concerned with the
accurate measurement of net gains on annual
basis.
 The establishment of a contingency reserve
does not represent a sufficiently certain
liability to be recognized for income tax
purposes.
20
LIFE INSURANCE BUSINESS
 Section 59 of the Act provides the
method of calculating income from life
insurance business activities.
 The income derived or loss incurred
from conducting life insurance business
shall be accounted for separately from
the income or loss of any other
activities of the person.
21
LIFE INSURANCE BUSINESS..
 Definitions
(a)" life insurance” means insurance of
any of the following classes:
 insurance where the specified event is
the death of an individual who is the

insured or an associate of the insured;
22
Definitions….
(b) insurance where-
(i) the specified event is an individual who is the
insured or an associate of the insured
sustaining personal injury or becoming
incapacitated: and
(ii) the insurance agreement is expressed to be in
effect for at least five years or without limit of
time and is not terminable by the insurer before
the expiry of five years expect in circumstances
prescribed by the regulations.
23
Definitions….
(c) insurance under which an amount or

series of amounts is to become
payable to the insured in the future;
and
(d) re-insurance of insurance referred to
under paragraphs (a) to (c).
24
Definitions….
 “life insurance business” means the
business of an insurer in effecting,

issuing and carrying out life insurance.
25
 Life insurance business shall be treated
as a separate business.
 Section 59(1) provides that a person’s
activities in conducting a life insurance
business shall be treated as a business
separate from any other activity of the
person.
26
Life insurance business shall be
treated as a separate business…
 Payments on proceeds of life insurance and
 retirement payments paid by a resident
person or a domestic permanent
establishment and
 any premium or retirement contribution paid
to a resident person or a domestic permanent
establishment to secure such a return have a
source in the United Republic.
27
Calculation of a life insurance
business income
 Section 59(2) provides the manner of
calculating the income of a life
insurance business of a person for the
year of income as follows:
28
business income…
 Amounts to be included
 In calculating the income of a person
for a year of income from a life
insurance business any amounts to be
included under other provisions of the
Act shall be included, except:-
29
business income…
Exclusions:
(a) premium derived during the year of income
by the person as insurer, including as re-
insurer, in conducting the business; and
(b) proceeds derived during the year of income
by the person under any contract of re-
insurance in respect of proceeds incurred by
the person as insurer, including as re-insurer
in conducting the business
30
business income…
 Premiums derived during the year of income
by the person as an insurer,
 including as re-insurer in conducting the
business shall not to be included as well as
 proceeds derived under any contract of re-
insurance in respect of proceeds incurred as
insurer, including as re-insurer in conducting
life insurance business.
 These are not to be treated as incomings of
the person.
31
business income…
 Other amounts shall be included as
provided for under other provisions of
the Act, which are, the amounts derived
by the person in conducting the
insurance business as stipulated under
Section 8 of the Act.
32
business income…
Amounts to be deducted
Expenses, which are allowable for deduction, are only
those of managing the business’s investments
(including commissions) that are deductible under
other provisions of the Act such as:
 depreciation allowances for depreciable assets under
Section 17,
 losses on realisation of business assets and liabilities
under Section 18,and

 losses from the investments under Section 19.
33
business income…
Amounts to be deducted…
 The person is prohibited to deduct the
proceeds incurred during the year of income

in conducting the business as insurer
including as re-insurer and
 premiums incurred under any contract of re-
insurance in respect of the proceeds.

 These shall not be included in the cost of any
asset or liability of the person.
34
PROCEEDS FROM INSURANCE
 Section 60 of the Act provides for tax
treatment of proceeds derived by a
person from insurance, both
 general insurance and
 life insurance, in calculating the income
of the person for a year of income.
35
Treatment of proceeds derived from
insurance in calculating income….
 Section 60(1) provides that subject to the

method of calculating income from general
insurance business stipulated in section 58(2)
and
 life insurance business in section 59(2), for
the purposes of calculating the income of a
person, proceeds derived by the person from
insurance shall be determined in accordance
with section 31
36
Section 31 provides that

 where a person derives an amount which
compensates for recovery of income or
 recovery of expected loss the compensation
amount shall be included (taxed).
 Therefore proceeds received from insurance
for recovery of income expected or loss
incurred shall be included, in calculating the
person’s income for the year of income and
shall carry the character of the income or loss
compensated for.
37
 The inclusion of the insurance proceeds

will in both cases increase the business
income either by increasing the actual
receipts or decreasing the loss or
deduction amount by the compensation
amount.
38
Gains of an insured from
life insurance
 Section 60(2) provides the tax status of the
gains from life insurance as follows: -
(a) where the proceeds are paid by a resident
insurer, they are tax exempt in the hands of
the insured; and
(b) where the proceeds are paid by a non-
resident insurer the proceeds are included in
calculating the income of the insured.
39
Gains of an insured from
life insurance…
 Gains of an insured from life insurance,
when taxable, are payments derived in
conducting an investment and
chargeable to tax under section 9(2)(a).
40
Meaning of “gains of an insured from
life insurance”
 Section 60(3) provides the meaning of

the term “gains of an insured from life
insurance” as the extent to which
proceeds from life insurance paid by a
insurer exceed premiums paid to the
insurer with respect to the insurance.
41
life insurance”…
Therefore gains of an insured from life

insurance are calculated as the
difference between:
 the proceeds paid by the insurer and
 the total premiums paid by the insured
during the period of the policy in

respect of the insurance.
42
life insurance”…
 Example See separate sheet provided
43
END OF SESSION
44

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TANZANIA REVENUE

INCOME TAX LAW 11

 Section 58(2) provides the method of

income by the person as an insurer;

income by the person as re-insurer;

insurance in respect of proceeds incurred

provisions of the Act, which are, the amounts

of any claims during the year of assessment in

under any contract of general insurance.

 At the end of each accounting period of

 However, though this provision is an

account the fact that some premiums

until the following year of income.

into account the following three types

arises and paid out during the year of

during the year, but that has not been

at the end of the year of income as it relates

accounting system on the basis that the

the death of an individual who is the

(c) insurance under which an amount or

business of an insurer in effecting,

under Section 18,and

proceeds incurred during the year of income

insurance in respect of the proceeds.

asset or liability of the person.

 Section 60(1) provides that subject to the

Section 31 provides that

 The inclusion of the insurance proceeds

 Section 60(3) provides the meaning of

Therefore gains of an insured from life

 the total premiums paid by the insured

during the period of the policy in

 Example See separate sheet provided

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