Life insurers adapt to outdated tax rules

The insurance industry is a vital pillar of the economy, serving both as a financial safety net and catalyst for long-term economic growth. By providing protection against life’s uncertainties such as illness, accidents, natural disasters, and death, insurance enables individuals and businesses to recover quickly and maintain financial stability.

- PARALUMAN ANDRES-NEAGOE

Beyond risk protection, insurance companies also play a crucial role in mobilizing long-term capital. Premiums collected are invested in government securities, corporate bonds, and infrastructure projects, helping to deepen the capital markets and support national development goals. This makes the industry a key player in strengthening financial resilience and promoting inclusive growth.

In the Philippines, the life insurance industry has evolved dramatically over the past decade, embracing digital transformation, expanding financial inclusion, and introducing innovative products such as Variable Unit-Linked (VUL) plans. Yet, despite this progress, the tax framework governing the industry remains largely unchanged, anchored in regulations issued more than 15 years ago.

Tax regulations affecting life insurers, such as Revenue Memorandum Circulars (RMC) 30-2008 and 59-2008, were drafted in an era dominated by traditional whole life and term policies. While both RMCs introduced the taxation of VULs, these tax rules were unable to account for the complexities of modern insurance products, particularly those with varying investment components. As a result, outdated tax rules have created ambiguity both for the insurers and the BIR regarding the proper classification of income, applicable taxes, and the propriety of allowable deductions. These rules failed to match the pace of change in the business of insurance and have now become subject to various legal opinions and interpretations leading to disputes during BIR audits.