The Securities and Exchange Commission of Pakistan (SECP) has introduced a significant amendment to the Insurance Accounting Regulations, 2017, through S.R.O. 312(I)/2025.
This regulatory update allows the shareholders' funds of life insurers to purchase the full amount of adjustable advance withholding tax or refundable tax recorded in the books of the statutory funds.
The Securities and Exchange Commission of Pakistan (SECP), following approval from the Securities and Exchange Policy Board, has issued these regulations to streamline the taxation treatment for life insurers' funds.
This amendment addresses the allocation and utilization of advance and refundable taxes within the shareholders' and statutory funds of life insurance companies.
Purchase of Advance Withholding Tax by Shareholders’ Fund
For advance, withholding, or refundable tax amounts that are adjustable within one year, the shareholders' fund must purchase these amounts mandatorily using cash, cash equivalents, or government securities.
With the ability to purchase advance tax from statutory funds, life insurers can now optimize cash flow and manage liquidity more effectively.
This regulatory change ensures that life insurers do not face liquidity constraints due to tax obligations tied up in statutory funds.
The new amendment aligns with international best practices in insurance accounting. The proper allocation of tax liabilities enhances financial reporting standards, ensuring that insurers meet global regulatory expectations.
This may require additional staff training, software updates, and internal audits to ensure smooth implementation.
Comparison with Previous Tax Treatment
| Aspect | Previous Regulations | New Amendment (2025) |
|---|---|---|
| Tax Allocation | No clear segregation between shareholders' and statutory funds | Clear segregation mandated |
| Purchase of Advance Tax | Not explicitly permitted | Explicitly allowed for shareholders' funds |
| Mandatory Purchase | No obligation | Required for amounts adjustable within one year |
| Compliance & Transparency | Potential ambiguities | Enhanced financial clarity |
The mandatory purchase of adjustable tax amounts within one year may impact investment strategies of shareholders’ funds.
Insurers must balance their asset allocation strategies to accommodate this requirement without compromising overall returns.
The SECP continues to enhance the regulatory framework governing Pakistan’s insurance industry.
This latest amendment reflects the regulator’s commitment to improving financial discipline, ensuring fair tax treatment, and aligning with global accounting standards.
