GST impact: Insurance policy rates may be hiked by 5 10% from FY19
The Goods and Services Tax (GST) regime that will be implemented from July 1 will not only lead to an immediate hike in your policy rates but will also lead to an additional revision due to increase in compliance costs and technology costs for insurers.
“The GST regime will lead to an increase in overall compliance as well as administrative costs. This will be passed on to customers in the form of a premium hike of 5-10 percent from FY19,” said the chief of a private life insurance company.
The current rate of taxation is around 15 percent for life insurance products which will increase to 18 percent under the GST regime. This would mean a direct increase of 3 percent in the premiums for all policies that are bought or renewed after July 1.
Currently, insurance policies attract a service tax of 12.5 percent. In addition to education cess and Krishi Kalyan Cess is applicable that takes up the rate of taxation to 15 percent. Now, the tax impact will directly be 18 percent for the insurance sector which will be passed on to customers.
However, the compliance and technology costs are expected to see an atleast 15 percent jump for insurers and they are looking to pass it on to customers from the next financial year onwards.
The insurance industry had sought a zero rating for the sector that would not attract any taxes for customers. However, this proposal was not considered by the ministry and the GST Council fixed an 18 percent tax for insurance and several other services.
policyholders will have to bear the burden of the additional expenses being incurred by the companies due to the new tax system that will be put into place from July 1, V Manickam, secretary general of Life Insurance Council told Moneycontrol.
The insurance regulator has set up a cap of expenses of management which has specified the maximum expenses for each segment of business. However, with the GST regime, the numbers are expected to see a jump and it is not clear whether any exemptions will be provided under this regime.
Insurers have not only sought a lower rate of taxation but also want a centralised registry system that will help them ease the tax disbursal process and also save costs.
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Jun 05, 2017 03:55 PM IST | Source: Moneycontrol.com