Tax

Next we will investigate tax.

For simplicity, we will only introduce 2 taxes, namely the premium tax and profit tax.

Premium tax is a sales tax, it is considered as a expense to insurance company.

\[PREM\_TAX _t = PREM\_INC _t × PREM\_TAX\_PC\]

And profit tax, as said, is the tax on profit.

\[PROFIT\_TAX _t = GROSS\_PROFIT _t × PROFIT\_TAX\_PC\]

If some of the tax is deductible, then we can subtract the tax deductible to the tax. The base for tax deduction varies by country. Take China as an example, the investment income is partly tax deductible, by 19%.

\[TAX\_DEDUCTIBLE _t = TAX\_DEDUCT\_BASE _t × TAX\_DEDUCT\_PC × PROFIT\_TAX\_PC \]

Hence the overall tax charged is:

\[TAX _t = PROFIT\_TAX _t - TAX\_DEDUCTIBLE _t \]

Note that tax is subtracted from gross profit to give the profit (after tax).
Premium tax is not a profit tax, it should be included in the formula of gross profit and considered like an expense.

The detail of the calculation of gross profit, profit and tax will be left in later chapters.