June 9: Insurance companies have to agree in principle to merge by mid-July to avail tax exemption facility announced by the Insurance Board for merger.

Such companies will have to start an integrated business by next June. The Finance Act stipulates that only insurance companies that have agreed in principle to merge within coming June will get various tax exemptions.

As per the law, the insurance company concerned will have to submit a letter of intent regarding the merger to the Inland Revenue Department within coming June to get a tax exemption for the merger. The Insurance Board had recently issued a circular urging the insurance companies to take action on the merger accordingly.

The Finance Act provides tax exemption on capital gains tax, dividend tax and retirement pay of companies going for the merger.

There is a provision in the Act that a merger agreement must be reached within Fiscal Year 2079 BS to get such facility.

Chairman of the board Surya Prasad Silwal said that the insurance companies should reach a merger agreement within this month to get the tax exemption facility. He said that no tax exemption will be given to those who sign the agreement after the specified period.

Insurance companies are preparing to merge after the board introduced the mandatory provision two months ago that requires the company to double their paid-up capital within the current fiscal year. Most life and non-life insurance companies have no choice but to merge to meet their capital growth needs.

The Insurance Board has directed to increase the minimum paid-up capital of life insurance companies to Rs 5 billion and non-life insurance to Rs 2.5 billion within given deadline. At present, the minimum paid-up capital is Rs 2 billion for life insurance and Rs 1 billion for non-life insurance.

A merger agreement has been reached between Everest and Himalayan General Insurance after the board directed the companies to increase the paid-up capital. A merger agreement also has been reached between Prime Life, Gurans and Union Life. Other companies are also preparing to merge. The board has urged the companies to take advantage of the tax exemption available for mergers.