The African nation of Zambia has proposed introducing a 5% withholding tax for reinsurers based outside the country, which could amount to an annual value ZMK 40 million (USD $3 million) if imposed, according Zambia Daily Mail.
In recent years, Zambia has been looking to control the outflow of reinsurance premiums to foreign firms in order to help local companies retain more of the premium income within the country.
Paul Nkhoma, President of the Insurance Association of Zambia (IAZ), said that out of the ZMK 2.5 billion (USD $205 million) gross written premium written on the local market in 2016, ZMK 912 million (USD $75 million) was reinsured, representing a market retention ratio of 63%.
Last year, Zambia’s government was reportedly considering amendments to its insurance laws to stop premium flowing out of the country, in line with a growing trend of protectionism in many regions of Africa.
Now, Zambia Daily Mail has quoted the IAZ as proposing the “introduction of a five percent of withholding tax on reinsurance placed on reinsurers not licensed in Zambia.”
“If this had been done in 2016, Government would have collected in excess of K40.74 million from these premiums in taxes,” the IAZ stated in its 2019 national budget.
Although it is understandable that many economically developing countries would try to retain more re/insurance market premium, some industry analysts consider this kind of protectionism to be a fallacy.
They argue that the full efficiency of risk capital can only be realised through open borders policies and the global transfer of risk to a diversified risk capital base.
