Islamabad, Mar 21, 2025: The Securities and Exchange Commission of Pakistan (SECP) has introduced a key amendment allowing life insurance companies to use their shareholders’ funds to purchase adjustable advance withholding tax or refundable tax recorded in the statutory funds.
This update was announced through S.R.O. 312(I)/2025, amending the Insurance Accounting Regulations, 2017.
The change was approved by the Securities and Exchange Policy Board to provide insurers with greater financial flexibility.
Key Highlights of the Amendment
As per the new regulations:
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Tax Allocation Rules – The advance withholding tax or refundable tax related to a life insurer’s shareholders’ fund must be recorded separately in the books of the shareholders’ fund.
- Similarly, any tax linked to the insurer’s statutory fund must be recorded in the respective statutory fund.
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Permission to Purchase Taxes – The shareholders’ fund of a life insurer can now acquire the full amount of adjustable advance withholding tax or refundable tax from the statutory fund’s books.
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This can be done using cash, cash equivalents, or government securities.
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Mandatory Purchase for Short-Term Adjustments – The shareholders’ fund is required to buy advance withholding or refundable tax that is adjustable within one year from the statutory fund.
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The transaction must be settled in cash, cash equivalents, or government securities.
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Impact on Life Insurance Companies
This move is expected to improve liquidity management for life insurers by allowing them to efficiently handle tax adjustments.
It also enhances financial transparency by ensuring clear documentation of tax liabilities between shareholders’ and statutory funds.
With this regulatory update, SECP aims to strengthen Pakistan’s insurance sector while ensuring compliance with financial governance standards.
