GST impact: Efficient tax collection under GST to help insurance sector

Rakesh Jain, Chief Executive, Reliance General Insurance

Jul 3, 2017,
Updated Jul 3, 2017 8:02 PM IST

The nationwide Goods and Services Tax (GST), rolled out from July 1, has created one of the world's biggest single markets. It makes GST, the biggest indirect tax reform since Independence, stand out as a big driver towards formalisation and transparency. For the multi-billion-dollar Indian insurance industry, GST is expected to boost economic activities in the medium-to-longer term. As the well-being of the insurance sector is directly proportional to economic activities, it is but imperative that the insurance industry will also see significant growth. Such positive effects should ultimately help increase the penetration of insurance in India, where per capita premium underwritten is among the lowest globally. Ease of business will also improve as layers of taxation reduce, and business policies are decided based on fundamentals, instead of taxation structure. The government has ensured that GST rates are not extremely different from the existing incidence of taxation, potentially offsetting the fear of inflation. Given the massive planning and implementation required for GST, so far it has been very well-executed. Step in right direction

The advent of GST will mean both insurance companies and their customers will play a big role in nation-building. At present, the tax rate applicable for insurance is 15 per cent, including 14 per cent Service Tax, 0.5 per cent Swachh Bharat Cess and 0.5 per cent Krishi Kalyan Cess. It is a centralised tax, and some credit is taken by insurance companies as they offset the tax paid by policyholders, and by themselves, as input credit. With GST now harmonising this at all levels of value-add taxes (VAT) existing across states, there will be only one taxation rate applicable for the insurance industry, which is 18 per cent.

Long-term benefits
It would be wrong to measure the impact of GST by the higher immediate cost of general insurance spanning car, healthcare and other non-life policies. Taxes will also increase for life insurance products such as term, endowment and unit-linked covers. The real effects of GST on the industry will be far-reaching and positive. It will replace indirect tax levies and lower compliance costs, and create a common market. The country's changeover to the goods GST could potentially enhance its gross domestic product (GDP) by 1-2 per cent or even higher in the next three-five years. From the inflation point of view, GST over the medium term could bring down price rise more permanently.
Simple but big reform
For customers considering buying an insurance policy, nothing changes in the selection process as GST impact will be the same across insurers. The good news is that some of the higher insurance costs should be offset if the tax on services availed by the industry is allowed to be taken into account to reduce insurers' tax paid. Once the state/centre structure of GST becomes simplified, it will help lower administrative costs for insurers. It will also ensure that the insurance industry will be able to pass on the benefits of this big-bang reform to end-customers soon.
Sensitive to the needy
It is important to acknowledge the government's vision regarding GST. While it has tried to boost tax compliance, the government has shielded the most vulnerable sections of the Indian society from shouldering any extra burden. It has been done by exempting the services general insurance business providers under the Hut Insurance Scheme, cattle insurance under Swarnjayanti Gram Swarozgar Yojna, weather-based crop insurance or the modified agricultural insurance scheme and so on. In the life insurance segment, services provided under Janashree Bima Yojana, Aam Aadmi Bima Yojana, Varishtha Pension Bima Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana and Pradhan Mantri Vaya Vandana Yojana have been exempted as well.
Conclusion
Global experience has shown that an agile and lean financial services industry is the backbone of any fast-growing economy. By emerging as an effective method of tax collection, GST is sure to help build a stronger Indian insurance industry and aid in protecting Indians better.
(The writer is Chief Executive, Reliance General Insurance.)
Also watch:

The nationwide Goods and Services Tax (GST), rolled out from July 1, has created one of the world's biggest single markets. It makes GST, the biggest indirect tax reform since Independence, stand out as a big driver towards formalisation and transparency. For the multi-billion-dollar Indian insurance industry, GST is expected to boost economic activities in the medium-to-longer term. As the well-being of the insurance sector is directly proportional to economic activities, it is but imperative that the insurance industry will also see significant growth. Such positive effects should ultimately help increase the penetration of insurance in India, where per capita premium underwritten is among the lowest globally. Ease of business will also improve as layers of taxation reduce, and business policies are decided based on fundamentals, instead of taxation structure. The government has ensured that GST rates are not extremely different from the existing incidence of taxation, potentially offsetting the fear of inflation. Given the massive planning and implementation required for GST, so far it has been very well-executed. Step in right direction

The advent of GST will mean both insurance companies and their customers will play a big role in nation-building. At present, the tax rate applicable for insurance is 15 per cent, including 14 per cent Service Tax, 0.5 per cent Swachh Bharat Cess and 0.5 per cent Krishi Kalyan Cess. It is a centralised tax, and some credit is taken by insurance companies as they offset the tax paid by policyholders, and by themselves, as input credit. With GST now harmonising this at all levels of value-add taxes (VAT) existing across states, there will be only one taxation rate applicable for the insurance industry, which is 18 per cent.

Long-term benefits
It would be wrong to measure the impact of GST by the higher immediate cost of general insurance spanning car, healthcare and other non-life policies. Taxes will also increase for life insurance products such as term, endowment and unit-linked covers. The real effects of GST on the industry will be far-reaching and positive. It will replace indirect tax levies and lower compliance costs, and create a common market. The country's changeover to the goods GST could potentially enhance its gross domestic product (GDP) by 1-2 per cent or even higher in the next three-five years. From the inflation point of view, GST over the medium term could bring down price rise more permanently.
Simple but big reform
For customers considering buying an insurance policy, nothing changes in the selection process as GST impact will be the same across insurers. The good news is that some of the higher insurance costs should be offset if the tax on services availed by the industry is allowed to be taken into account to reduce insurers' tax paid. Once the state/centre structure of GST becomes simplified, it will help lower administrative costs for insurers. It will also ensure that the insurance industry will be able to pass on the benefits of this big-bang reform to end-customers soon.
Sensitive to the needy
It is important to acknowledge the government's vision regarding GST. While it has tried to boost tax compliance, the government has shielded the most vulnerable sections of the Indian society from shouldering any extra burden. It has been done by exempting the services general insurance business providers under the Hut Insurance Scheme, cattle insurance under Swarnjayanti Gram Swarozgar Yojna, weather-based crop insurance or the modified agricultural insurance scheme and so on. In the life insurance segment, services provided under Janashree Bima Yojana, Aam Aadmi Bima Yojana, Varishtha Pension Bima Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana and Pradhan Mantri Vaya Vandana Yojana have been exempted as well.
Conclusion
Global experience has shown that an agile and lean financial services industry is the backbone of any fast-growing economy. By emerging as an effective method of tax collection, GST is sure to help build a stronger Indian insurance industry and aid in protecting Indians better.
(The writer is Chief Executive, Reliance General Insurance.)
Also watch:

GST impact: Efficient tax collection under GST to help insurance sector

Positive effects of GST will help increase the outreach of insurance in India, where per capita premium underwritten in dismal, writes Rakesh Jain, Chief Executive, Reliance General Insurance.

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GST impact: Efficient tax collection under GST to help insurance sector

Positive effects of GST will help increase the outreach of insurance in India, where per capita premium underwritten in dismal, writes Rakesh Jain, Chief Executive, Reliance General Insurance.

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