There is dissatisfaction among the public at large pertaining to the exclusion of GST when settling motor vehicle insurance claims. They are of the opinion that this is being done by the Insurance Companies without the knowledge of the Dept. of Inland Revenue.

I wish to clarify the following:

By his circular dated 22nd December 2000, the Deputy Commissioner (GST) has advised all insurance companies to follow the procedure pertaining to insurance claims. i.e. when insurance claims are submitted by the insured company, unless a GST invoice is raised by them the GST element need not be paid by the insurance company.

For eg: Say, a Company "A" whose motor vehicle has met with an accident receives a Bill for Rs. 120,320.85 from the garage which has repaired the vehicle. The break-down on the said Bill will be:

Repair charges - Rs. 100,000.00

GST - Rs. 12,500.00

NSL (6.5%) - Rs. 7,820.85

TOTAL = Rs. 120,320.85

The insurance company does not have contractual liability towards the garage. If Company "A" is registered for GST, it has to raise a similar invoice in favour of the insurance company and will receive the full claim and the GST element has to be paid to the Dept. of Inland Revenue by "A" accordingly.

If Company "A" is not registered for GST it cannot raise a GST Invoice and therefore insurance claims would be settled without the GST element.

It would be interesting to note that Company "A" will be liable for GST of Rs. 12,500 on the claim bill and would be entitled to a credit of Rs. 12,500 embedded in the Repair Bill, provided the vehicle involved was used to make taxable supplies. For eg: if it was a car used by directors or officers of the company, GST input credit cannot be claimed. i.e.: Company "A" will lose the Rs. 12,500.

Similarly, individuals who are not in a position to raise GST invoices have to forego the GST embedded in their Repair Bill. This situation I admit is unfortunate. However, insurance companies could very well pay the insurance claim in full even if GST invoice is not raised by Company "A" or an individual (not registered for GST) without claiming input credit when settling their GST liability with the view to maintaining goodwill or securing business.

Recently, the Chairman of Sri Lanka Insurance Corporation had announced they are not deducting the GST element when settling motor vehicle insurance claims. i.e: they are bearing the GST burden voluntarily.

it is not correct to criticize the insurance companies when they are acting in accordance with the direction issued by the Dept. of Inland Revenue. The proverb "It is not fair to curse the arrow when the archer is to be blamed" fits appropriately in this regard.
"Kanorji Angare"
Colombo 6