Generally, Insurance claims aren’t supposed to be subjected to tax but so many scholars have argued that insurance policies are supposed to be taxable, mostly those of them that involves cash payments.
Fred A. Argued that Insurance policies are not supposed to be taxable, he gave this a story line in which there was a young man who was insured and after the loss during the pay-out time, he postulated that the young man was to be charged for his VTU as this was not really cool with him; Because he further stated that when tax is supposed to be derived from is something that yields income and not the on that pays for losses. To him, insurance firms were there to assist the people in their loss and not to extort from them all in the name of tax. To him the idea of the monetary aspect of insurance been subjected to tax is not a fair One.
The idea of most insurance claims mostly the monetary aspect been subjected to VAT is not idea because VAT has to do with good and tangible things they can touch or feel whereas what insurance firms are doing cannot be felt of touched and not for interest purpose; it is just a mechanism to save lives and as well insure that depression does not come when some damages occurs in the life of People thus there’s not supposed to be VTU in any form.
Insurers are unable to recover VAT most times incurred in obtaining replacements of goods or having repairs carried out on or for a policy holder. This supply most times are being treated as being made to the policy holder irrespective of who makes the payment to the supplier. However, it was discovered that Value Added Tax (VAT) registered insurance firms can subject the normal rules as well as recover the tax incurred thereby, the insurer will normally make the payments to the policy holder and in exclusion of the VAT.
Most times, situations arrive when a business is not fully exempt from VAT, this happens where the business may not be able to recover the input tax in full. Though this is huge complication that needs to be absolutely resolved between the policy holder and the insurer. To conclude this is to state clearly that most of the insurance claims attracts tax mostly when the policy holders are not registered under Value Added Tax.
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