Service tax may make Non life insurance costlier

The hike in service tax, which is now 12%, may lead the non life insurance industry to become more expensive. The government’s decision to levy service tax on reinsurance business may not be very good news for the non life insurance industry. The General Insurance Corporation of India caters to the reinsurance needs of the country and also underwrites risks globally. If it intends to continue with underwriting global risks, it will have to digest the service tax on the premiums received. But this would mean loss in the business. Moreover the claims that are received exceed the premium amount. The tax burden cannot be passed on to International reinsurers because it would mean more outgo at their end, moreover they do not rely for earnings on Indian business. So in all respects the likelihood is strong enough for the additional service tax on risks to be passed to the insurance companies. The consequence of the hiked service tax rates will result in increased premia rates. The government for the first time has imposed tax on the reinsurance business. However, the first premium paid is taxable and if service tax is also imposed on the reinsurance business, this would lead to double taxation. So a discussion on this issue can be assumed.