About three weeks left for the implementation of GST Regime in India and still the insurance industry is working effortlessly. The industry will not only require modifying their back-end systems but they will also require registering their offices across all the states in India.
The GST Council has announced 18 percent tax rate on insurance sector along with structure system of CGST and SGST. At the time of payment of GST returns, the company has to further categorize tax in the Centre and State. For implementing GST Regime from 1st July the industry must have to be registered across 29 states.
“While the industry had sought a centralized GST, we have been offered a decentralized system of GST,” said the Chief Financial Officer of a mid-size insurance firm. “This would mean that we will have to set up registered offices across all the states that we are operating in. The costs incurred will be huge.”
The new indirect taxation structure is going to roll- out from 1st July. This means that every insurance sale transaction will have two taxation structures to be adopted by an individual company. The tax collects from the insurance industry as a premium will further categorize into two i.e. the Centre as well as the state, from where the sales generates. The back-end systems will be designed in such a manner that when sale generates in the company, the taxes are automatically submitted to the Government portal.
It is presumed that premium prices of insurance are likely to increase after the implementation of GST Regime. A senior official of large private life insurer said that, still they have not started to inform customers that premium prices will be enhancing in GST Regime.
“We were expecting some positive development on the rate front from the June 11 meeting. However, GST rates for insurance have been kept unchanged. We will have to begin apprising customers,” he said, saying that an impact on renewals will certainly be seen.
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The market share of Insurance in India is low i.e., less than 5 percent. Keeping in mind, the insurance companies had declined lower rates of tax to draw the attention of customers. “The immediate impact will be an increase in the tax from 15% to 18% which will have to be borne by customers,” said Tapan Singhel, MD, Bajaj Allianz General Insurance.
“The government has continued with the existing exemptions under the GST regime. When there are exemptions the entire value chain of credit gets lost,” Gopal Balachandran, chief financial officer, ICICI Lombard. As a result, the incidence of higher tax will fall on the customer.
