Insurance stakeholders warn of industry stagnation amid tax proposals

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Insurance stakeholders have warned of industry stagnation as the Ministry of Finance, Planning and Economic Development (MoFPED) moves to expand the country’s tax-to-gross domestic product (GDP) ratio through a sweep of legislative amendments for the 2026-27 financial year.

Sector key players are raising red flags, saying that aggressive taxation may cripple a sector still in its ‘infancy’ and reverse gains in financial inclusion.

Insurance Agents Speak Out

The Uganda Insurance Agents Association (UIAA), led by president Muyomba Moses Joshua, has formally petitioned the Minister of Finance to reconsider the treatment of Withholding Tax (WHT) on commissions.

Currently, insurance service providers withhold 10% on gross commission payments under Section 118G of the Income Tax Act.

However, because this 10% is not a ‘final tax,’ agents are legally required to file provisional and final returns, maintain complex books of accounts, and often pay additional income tax.

Muyomba warns that this compliance burden is unsustainable for a workforce where 76% of agents earn less than sh1 million per month.

“Subjecting insurance agents to filing returns and paying more tax would significantly reduce their earnings, making it difficult for them to sustain their businesses,” Muyomba stated, noting that many agents may flee the profession.

Insurance Challenges

The Association highlighted several on-the-ground challenges the sector faces, including undocumented expenses, double taxation and a lack of benefits.

The association said agents incur random, daily costs for boda bodas, airtime, and fuel to reach clients, expenses for which it is nearly impossible to secure formal receipts for tax deductions.

They are raised the issue of double taxation, noting that on top of the 10% WHT, agents pay a 1.5% levy to the Insurance Regulatory Authority (IRA), totalling an 11.5% dent in their gross earnings.

Additionally, unlike formal employees, Muyomba said agents have no access to NSSF or retirement schemes, making their take-home commission their only means of survival.

Muyomba is calling for the 10% WHT to be made a final tax, granting agents the same treatment as mobile money agents.

According to the chairperson of Uganda Insurance Association (UIA), Jonan Kisakye, the lack of clarity in the current law has created disputes between agents and the Uganda Revenue Authority (URA), with agents being asked to produce historical expense records that are difficult to track.

He said that many agents had initially assumed the 10 percent WHT, introduced in 2020, was a final tax, only to later face compliance challenges.

“Making 10 percent WHT explicitly final, and backdating its application, would restore certainty and improve insurance penetration by allowing agents to focus on sales rather than tax administration,” he noted.

Minimum Tax Proposals

The corporate side of the industry is equally unsettled. Emmanuel Sanyu Safali, Director of Promise Esaf Insurance Promoters (Uganda) Ltd, argues that the proposed minimum tax on companies reporting losses for more than seven years ignores the fundamental nature of insurance.

“Life insurance companies operate on long-term models and often report losses in their early years due to high acquisition costs and regulatory capital requirements,” Safali explained.

He warned that a tax based on gross income would penalise compliant firms rather than stopping avoidance.

For non-life insurers, Safali noted that volatile claims cycles, driven by medical inflation and climate-related losses, can lead to losses even when premium volumes are high.

Therefore, he said, imposing a tax during these periods could weaken capital buffers and drive up premiums for consumers.

Double Taxation Trap

The proposal to levy sh200,000 on motor vehicle transfers and sh50,000 on motorcycles is being viewed as economic double taxation.

Motor insurance policies already attract a statutory stamp duty of sh35,000.  The cumulative effect would raise the cost of ownership, discourage insurance compliance, and increase the number of uninsured vehicles on the road,” Safali noted.

Furthermore, Safali highlighted a ‘VAT asymmetry’ where life insurance is exempt while non-life products remain taxed, a gap that he believes should be addressed before adding new burdens to essential covers like medical and property insurance.

UIAA maintains that without a robust insurance industry, Uganda’s Vision 2040, the goal of transforming from a peasant to a modern society, is at risk.