A proposal to exempt health insurance policies from the current 18 percent Goods and Services Tax (GST) could result in an annual revenue loss of Rs 3,500 crore, according to a senior official involved in the discussions. This proposal is under consideration by the Fitment Committee ahead of the GST Council’s meeting on September 9.
“If we exempt full health insurance, the loss will be almost Rs 3,500 crore. Exemption of health insurance from GST, if approved by the Council in the meeting on September 9, will cause a huge revenue loss,” the official stated, on the condition of anonymity.
The Fitment Committee comprising state and central government revenue officials will have to weigh the possible trade-offs between lessening the financial load on consumers and the massive revenue loss to the government. A final call will be taken by the GST Council headed by Finance Minister Nirmala Sitharaman and comprising state finance ministers.
Tax experts argue their views on the implications of the proposed exemption.
Rajat Mohan, Executive Director at tax consultancy Moore Singhi said though the exemption could bring down the expenses for a consumer, the insurance industry would then be deprived of input tax credits that offset these costs and thus jack up the cost of servicing an insurance policy. “The reduction in taxes might offset the increase in costs to that extent. But the exact balancing would be tough to determine at this stage,” Mohan added.
On the other hand, some feel that making health insurance more attractive due to affordability caused by exemption from GST would promote its market penetration. Anchal N. Arora, Partner at Felix Advisory, brought out the delicate balance the government must make: “On one hand, it will result in a huge revenue loss to the government, while on the other hand, exemption from GST will make insurance more affordable to the public at large and also increase market penetration.”
The GST on health insurance is thus not an absolutely new debate. Union Minister for Road, Transport and Highways Nitin Gadkari had called for exemption of GST on life and medical insurance premiums. In his letter to Finance Minister Sitharaman, the minister said that an 18% GST on medical insurance premium is acting as a hindrance to growth to a socially essential service. The decision of the GST Council will be keenly watched, as it applies to the revenue of the government, besides linking it to Health Insurance accessibility for the nondiscriminatory common public.
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Source: Moneycontrol
News Desk
