Context
Due to the mounting pressures to lower the GST imposed on health and life insurance, the Indian government has constituted a GoM. The scheme to work out the impact of the present taxation structure in place at 18% and to make a proposal envisaging reducing policyholders’ burden was announced during the 54th GST Council meeting on September 9, 2024.
Background of the GST on Insurance Premiums
- The GST was implemented in India in July, 2017, which subsumes a lot of indirect taxes in the country into one system.
- Although it was aimed at rationalising the tax system the 18% GST on health and life insurance premium is a point of concern to the consumers and players in the sector.
- Critics have criticised this high tax by pointing out that it dissuades people from buying insurance which in today’s world is crucial when it comes to risk management.
Growing Concerns Among Stakeholders
- Currently the costs involved in insurance as applied to the policy holders regarding their health has sparked a lot of concern.
- Various RWAs and consumer organizations have come up with their complaints about such acts, it is important to configure a fair tax system under which basic insurance products would be available.
- This is an overview of those concerns and how the GoM’s formation thus demonstrates the government’s readiness to listen to stakeholders.
Objectives of the Group of Ministers
The GoM has been tasked with several key objectives:
- Evaluating the Current Tax Structure: The primary purpose of the GoM therefore is to make a review on the viability of the current 18%, GST on health and Life insurance premiums. These are the effects of the tax on the market on consumer behavior, insurance uptake and the market as a whole.
- Exploring Options for Tax Reduction or Exemption: The GoM will favourably deliberate on different measures that could be taken in a bid to lessen the tax incidence on health insurance. This may include:
- Suggesting the levy of lower GST for insurance categories.
- Based on exemptions for senior citizens and those living in low income earners households.
- Engaging with Stakeholders: To get the information for these items, the GoM will consult the insurance companies and other related organizations such as consumer organizations and experts in the field. The collaborative approach is designed to attempt to make sure that the final resolutions that are offered are as accurate as possible and take into consideration the interests of each of the partners.
Implications of the GoM’s Review
This is especially possible where the government is reviewing the 18% GST on health and life insurance; hence, the implications affecting both the consumers and insurer can be very severe.
- Potential Reduction in Premiums: In the same way, if the GoM comes up with the desire to slash the GST rate then this may also make it possible to have lower premiums on the policy to the policyholders. It would also help in making insurance products more affordable and publicly available hence more people would buy insurance and improve their financial position.
- Increased Insurance Penetration: This will in turn lead to increased insurance penetration and density per capita in India which are relatively low than the’ international benchmarks. Insurance hence has the potential of reducing some of these risks incurred during health crises and uncertainties in life hence more beneficial to the society.
- Impact on Insurance Companies: Although the government may have to reduce the GST rate to make it easier for consumers to pay, it will affect the insurance companies in their revenue returns. The highly competitive nature of the auto insurance industry and the advent of driverless cars may mean that insurers have to take measures, such as re-assessing premium rates and their ways of doing business to achieve better financial returns.
Challenges Ahead
Despite the positive outlook, several challenges may arise during the GoM’s review process:
- Balancing Revenue Needs: This is the reason why the government has the task of finding a way of ensuring that insurance is brought within the reach of the populace while at the same time ensuring that its revenues are enough to cater for its needs. The GST is paid on insurance and is among the taxes that are applied to the various industries, and cuts may have a direct impact on the government’s income.
- Addressing Diverse Stakeholder Interests: Insurance itself is made up of several entities which include the players in the insurance industry and all have their own objectives and goals to achieve. These three topics of discussion will require the GoM to flow through six different perspectives as follows:
- Ensuring Compliance and Transparency: To implement any change in GST structure, it will be pertinent to note that it has been evolved as a system that requires strict adherence to rules and regulations with the aspect of transparency. To this end, the government has to come up with measures and procedures that will enhance the transfer to the new tax system.
Source: The Hindu