“The Budget has kept a fiscal deficit target of 4.6% for next year. This could translate into bringing the stimulus package down from last year, considering the economy is in a good shape. This will keep inflation in check, add to this the proposal of spending more on infrastructure and education will keep our economy on track to the targeted growth. Â
Insurance is one of the few industries that sell long-term products in a changing regulatory scenario, where frequent changes on the tax side keep taking place. Successive budgets have enacted provisions either on the Direct or Indirect tax side, adversely impacting the insurance industry.
Lack of a disciplined policy formulation can damage both the industry and the consumer, given the long-term nature of the products sold and bought.
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This year’s budget also comes loaded with similar policy measures that will add to the existing despair of the industry:
1.Participating products – an increase of 50% of service tax from 1% to 1.5% of premium
2.ULIP components being taxed again post abolishing them last year. This taxing of the allocation charges and policy administration charges will affect the yield, and we envisage atleast  20-25 bps reduction in yield to the policyholder
3.Also on the service tax input pool of the credit availability is restricted now only to 80 % – meaning 20 % has to be written off by the insurance company
4.In addition to this the Direct Tax Code proposed to be implemented next year will be bringing in sweeping changes in form of the EET regime. This could further put additional tax burden on the policy holdersâ€
Mr V Sinivasan, CFO, Bharati Axa
