The Ministry of Finance and Economy will move to establish education tax assessment standards for insurers that reflect the new accounting regime (IFRS 17). The ministry plans to flesh out the standards through a research project in the second half of this year. Earlier, the insurance industry had asked the ministry to improve the education tax base in line with IFRS 17, and the research project is a follow-up to that request.
According to the financial industry and others on the 7th, the ministry plans to launch a research project in the second half of this year to improve the education tax assessment standards for insurers. Insurers have been using IFRS 17 since 2023, but the education tax standards are still based on the old accounting standard (IFRS 4). The research aims to establish education tax standards applying IFRS 17.
The education tax is a levy to expand funding for the education sector and is imposed on financial companies with revenue exceeding 1 trillion won. Revenue refers to interest, dividends, fees, guarantee fees, gains on the sale or redemption of securities, premiums, and more that a financial company earns. For premiums, taxation is based on the amount excluding what is set aside as policy reserves and catastrophe reserves. Policy reserves are an expense that an insurer sets aside to pay policy benefits, refunds, policyholder dividends, and the like to policyholders.
Under the previous accounting standard, IFRS 4, insurers used a "cost valuation" method that calculates insurance liabilities based on the time the contract is signed, while IFRS 17 uses a "fair value" method that calculates insurance liabilities by reflecting the market interest rate and other factors at the time of settlement of account. In the end, policy reserves differ depending on the accounting standard, which in turn leads to differences in the education tax owed.
The insurance industry has complained that using a different accounting standard only for the education tax base inevitably causes operational confusion. In May, insurers argued to the Ministry of Finance and Economy that, since revenue recognition systems at insurers have changed following the implementation of IFRS 17, the education tax base should also be aligned to prevent accounting confusion. They also reportedly said that, since the education tax rate was raised to 1% from 0.5% starting this year, the standards should be revised to ensure fair taxation.
An official at the ministry said, "We are setting a specific timeline to launch the research project."