Taxation of commissions payable to insurance brokers/agents – An obligation or a nightmare?

The insurance industry is one of the specialised businesses having a peculiar business model and corresponding distinct tax considerations in Nigeria. The core business of insurers/insurance companies, simply put, is to provide cover to another party (insured), against possible financial loss within a specified period. In return, the insured pays an insurance premium at the inception of the cover period, which forms part of the income reported in the books of the insurer. A critical aspect of the business expansion mechanism in the insurance industry revolves round brokers and agents. Insurance brokers/agents act as middle men; bridging the gap and linking insurers with potential insured parties seeking to hedge against risks. Insurance companies incur costs in sourcing the services of brokers/agents (commissions). Commissions are often calculated as a percentage of the insurance premium, depending on a number of factors such as coverage, the insurer and marketing methods, etc. Although the…