The Goods and Services Tax (GST) Council reached a broad consensus on reducing taxes on health and life insurance premiums. Based on the recommendations of a Group of Ministers, which was set up specifically on this issue, a final decision would be taken in the next Council meeting in November.
The genesis of the demand lies in a letter written by Union minister Nitin Gadkari wrote to finance minister Nirmala Sitharaman on July 31 calling for the withdrawal of tax on insurance premium as he felt it is akin to taxing uncertainty of life. The demand was immediately endorsed by Opposition parties, including the Congress, and the allies of the ruling Bharatiya Janata Party (BJP). Though it is expected to cost Rs 200 crores for the Central exchequer, all political parties appear to have decided to bite the bullet.
It is one of the few occasions that an initiative for a government decision is traced to any person other than Prime Minister Narendra Modi — something unlike Mr Modi. Though the BJP appears to remain confident, it seems shaken by the lower than expected majority in the Lok Sabha. It also indicates growing pressures on the Modi 3.0 government in accommodating the interests of its allies.
While the decision to withdraw tax on insurance has strong moral grounds, it is not based on sound administrative logic because essential goods like medicine, and paramedical services like diagnostics attract a GST of 12 per cent. At some point in time, one could raise a question on how medicines and preventive diagnostics could attract a 12 per cent tax.
Similarly, even an extremely poor person pays the same amount of tax when he buys any particular commodity as a rich person would. It is always known to everyone that a tax levied on goods and services is considered a regressive tax, yet no one across the world could do away with it.
If the Modi government coming under political compulsions seeks to review the GST on insurance, it will open a Pandora’s Box. It should, therefore, frame clear guidelines to govern such demands in future.
