Editorial: Wait for relief gets longer

A hefty 18% GST on health insurance premiums is stifling, particularly when its life cover penetration is abysmally low

By deferring a decision on the demand for reducing the Goods and Services Tax (GST) on health insurance and life cover premiums, the 54th meeting of the GST Council, chaired by Union Finance Minister Nirmala Sitharaman, has disappointed a large section of people in the country. It is widely felt that levying a hefty 18% GST on insurance premiums is totally unfair and stifling, particularly in a country where health insurance penetration is abysmally low. There was an expectation that the GST Council meeting would take a favourable decision as the demand for withdrawing the tax has been growing. In fact, Sitharaman’s cabinet colleague Nitin Gadkari too had joined the chorus of demand. However, the Council decided to set up a Group of Ministers (GoM) to examine the issue and submit a report in 50 days. With this, the wait for relief has just got longer. There is no justification for the high GST on insurance policies. A political consensus on rationalisation of the tax slabs will help in the quick resolution of the matter, hopefully in the November meeting of the Council. A person who covers the risk of life’s uncertainties to give protection to the family should not be levied tax on the premiums to purchase cover against this risk. The insurance industry has long advocated for a reduction in GST to enhance the appeal of its products. Lowering the GST rate would not only make insurance more affordable but also stimulate its uptake, contributing to broader financial security and health coverage.

The Council’s decision to lower the GST on some cancer drugs from 12% to 5% per cent is a welcome development. Similarly, the exemption of GST on research and development grants from private and public sectors to recognised educational institutions was a much-awaited course correction. Several institutions across the country received show-cause notices last month, demanding unpaid taxes. This evoked a sharp reaction from academic and research community, with some dubbing it as ‘tax terrorism’, and put a question mark on the Centre’s R&D policy push. Now, the relief, announced by the Council, is expected to boost research programmes and achieve global tax parity. Reduction of GST on namkeen and savoury food products from 18% to 12%, slashing taxes on helicopter services for religious travel to 5% and GST exemption for import of services by foreign airline companies are the other key takeaways from the meeting. However, there is still no clarity on the issue of the GST compensation cess, originally levied to compensate States for any loss in revenue measured against their guaranteed revenue. Another GoM is being constituted to examine this matter. The current structure of multiple slabs along with the levy of the compensation cess only adds to the complexity of the tax system and goes against ease of doing business in the country.

---