ZAMBIA: 2023 NATIONAL BUDGET – GOVERNMENT SEEKS TO INCREASE UPTAKE OF INSURANCE SERVICES
The Budget looks to release the huge potential that lies in the Zambian economy by incentivising various industries and sectors.
While the insurance sector appears to have emerged largely untouched, there are significant reforms in the new Insurance Act 38 of 2021, which was enacted into law in May 2021 and is due to come into effect in the near-term. In addition, the Minister announced two major proposals relating to this budding sector.
First, the Minister has proposed the removal of the 20% withholding tax on re-insurance, including retrocession. This measure will also likely mitigate the local insurer’s capacity to meet the current reinsurance needs, by encouraging the uptake of reinsurance services from reinsurers, including those not licensed in Zambia.
However, with this measure, the Government is coming full circle on its decision (less than a year ago) to introduce a 20% withholding tax on reinsurance payments to foreign re-insurers. This was done to both increase revenue from the sector and to grow the local re-insurance sector by encouraging the placement of reinsurance contracts with local re-insurers.
Second, the Minister has proposed the removal of the 15% withholding tax on investment income—the profit that is earned from investments—from life insurance funds to encourage individuals to save or take out investment products with a life insurance component.
The measure is intended to increase the return on investments in life insurance funds and stimulate the uptake of life insurance services. The portfolio of a life insurance fund can include stocks, bonds, cash and alternatives, into which the policyholder's life assurance premiums are paid and from which claims are paid. This measure will also align the tax treatment of investment income earned by life insurance funds with international good practice.
To successfully implement the above proposals, the Government will review and amend relevant legislation, including the Insurance Premium Levy Act and Value Added Tax Act, among others.
Zambia’s uptake of insurance services remains relatively low, with the FinScope Zambia 2020 Survey Report recording an increase to 6.3% from 2.8% in 2015.
Statistics from the Insurers Association of Zambia (IAZ), a member organisation for all licensed insurance and re-insurance companies in the country, indicate that there are 34 insurance companies currently operating in Zambia, 10 of which operate in life insurance and 19 in non-life or general insurance. The market also involves five reinsurers.