A HIGHER foreign direct investment (FDI) will unshackle the insurance industry and drive growth and long-term development, enrich the business by bringing world-class business practices and processes, expand distribution capabilities and deepen market penetration.Over Rs 10,000 crore of foreign capital could flow into the country if the government were to pass the Insurance Amendment Bill that raises the FDI limit.

Waive service tax on micro insurance products
The growth of the rural insurance industry necessitates a waiver of the service tax, which currently stands at 10.3 per cent including education cess. This tax is detrimental to the growth of the rural insurance industry and insensitive to the plight of rural populace which lacks quality healthcare and is vulnerable to numerous perils, including illness, accidental death and disability, loss of property due to theft or fire, agricultural losses, and disasters of both the natural and man-made varieties.

Rural insurance has an enormous potential for growth, and a service tax waiver will make micro insurance products more affordable for the rural populace, and will drive pan-India penetration of this market.

The government’s universal health insurance scheme exempts public sector undertaking (PSU) companies from the service tax which precludes a level playing field for all insurers. An exemption on rural health premium should also be made applicable to private insurance players.

Small transactions to be exempted from service taxes
There is an urgent need to increase the threshold for the levy of service tax on policies. The present notification exempts small transactions involving premium of less than Rs 50 (except motor insurance) from the ambit of service tax. The threshold limit of Rs 50 which was fixed in 1994 needs urgent revision. Small transactions involving premium up to Rs 1000 should be exempt from service tax which will unquestionably benefit the under-privileged sections of our society.

Insurance premium for covering small and medium enterprise risks should be exempt from service tax.
For other insurance products, we would like a reduction in the service tax by at least 3 to 4%.
Administrative convenience in policy processing will be facilitated. Considering the low penetration of insurance in our country, there needs to be a concerted effort to make insurance all the more affordable and hence an attractive proposition for the common man. Clearly, abolition of the service tax will enable this process.

Next page: Reinsurance payments not to be liable for TDS

1 | 2 |  

e-mail: Ajay Bimbhet

Suggest a story idea! Write to us!