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Mr Karonga

Golden Sibanda Senior Business Reporter
THE Insurance and Pension Commission (IPEC) says financial institutions such as banks, insurance companies and pension funds should invest more in housing prescribed assets, as they are an attractive investment option.  IPEC commissioner Tendai Karonga said the financial industry should prioritise housing development prescribed assets, which offer good returns given the backlog of over 1,5 million housing units in the country.

He said investment in prescribed assets had a bearing on the tax base because of the tax status accorded to income derived from the underlying assets. Generally, prescribed assets are also accorded tax exempt status. As a result, income from investment in prescribed assets is income tax and VAT exempt. Pension funds and insurance firm’s held about $10 billion worth of assets by the close of the first quarter, according to statistics from IPEC.

“The Commission, therefore, urges market players in the financial sector to channel resources towards housing,” Mr Karonga told delegates at a tax and business interface week meeting in Harare yesterday.

This dovetails into Finance and Economic Development Minister Patrick Chinamasa’s policy thrust, which allows pension funds to invest up to 50 percent in properties, 10 percent in unquoted companies and 45 percent in money market. The cash in any bank should not exceed 5 percent of the total investment while not more than 10 percent of the fund should be lent to the employer. The law limits pension funds investment in quoted companies to 15 percent, as it seeks to direct investments to productive sectors.

Already, IPEC has partnered the Infrastructure Development Bank of Zimbabwe in developing low cost housing projects across the country. The housing projects are supported by the insurance industry under the Insurance and Pension Housing Fund. Life insurance companies have taken active participation in investing housing development having set aside $300 million for low cost housing. IPEC and IDBZ are developing low cost projects in Kwekwe and Hwange. IPEC said the industry directs 2,5 percent total assets towards the project.

Mr Karonga also said in terms of paragraph 10 of the sixth schedule of the Income Tax Act tax advantages exist for policyholders who invest in pension products. Contributions to approved pension funds and amounts used to purchase annuities are deductible in the hands of members up to a threshold of $5 400 per annum including NSSA contributions.

On tax advantages of life insurance products, he said although premiums paid in respect of a life policy were not tax deductible, living benefits, for instance cash value or surrender value, bonus and dividend) and death benefits were tax exempt. Whereas amounts used to purchase annuities on retirement are tax-deductible to the member up to $5 400, income arising from this investment is however subject to tax after deducting amounts used to purchase the annuity. Insurance taken for purposes of estate duty is deductible when computing estate duty.