LIC may pass on service tax burden to agents

While Budget 2008 have not mentioned anything about service taxation on coverage commissions, Life Insurance Corporation (LIC) is considering passing play on the taxation load to its agents or customers, according to beginnings in the public sector insurer.

Life coverage companies, both authorities and private, had sought decrease in the current service taxation charge per unit of 12.5 per cent.

LIC have been absorbing liabilities arising out of service taxation on agent commissions, leaving its 13 hundred thousand agents free off this burden. A senior LIC functionary said that LIC's new concern insurance premium (NBP) income was Rs 55,395 crore during 2006-07.

Considering that the norm committee per policy is at 10 per cent, the corporation would have got paid around Rs 5,500 crore as the committee of the agents. Here, the service taxation at 12.5 per cent plant out to about Rs 700 crore, which have been borne by the the insurance company on behalf of the agents.

This figure is only for NBP income and if the committee on policy renewals is added, the service taxation load would be much higher for LIC, the functionary added.

With gradual addition in service taxation rates, it may not be possible for LIC to absorb the service taxation load in full.

"Going forward, we may have got to go through it on to our agents or customers, either a part of it or full. In this epoch of intense competition, we cannot afford to lose our clients by giving them less bonus. So, we might stop up passing on the load to the agents," the senior functionary added.

He added that from April to December 2007, LIC collected NBP of Rs 34,595 crore, which is likely to travel up to Rs 60,000 crore by the end of the current fiscal year. A 10 per cent committee for this amount plant out to Rs 6,000 crore. And, the service taxation amount plant out to Rs 750 crore at the charge per unit of 12.5 per cent.

However, in the lawsuit of private insurers, the service load have been passed on to the agents. During 2006-07, private insurance companies collected NBP income of Rs 19,471 crore for which committee worked out to about Rs 3,000 crore. The service taxation amount of Rs 350 crore was born by the agents.

It is also estimated that life coverage companies, including LIC, are likely to accumulate NBP of Rs 1 hundred thousand crore during the current fiscal year, on which committee of 10 per cent will be levied (to around Rs 15,000 crore). On this commission, life coverage companies will have got to blast out Rs 10,000 crore as service tax.

A senior functionary with a private life coverage company pointed out that insurance companies will now confront the challenge of retaining their agents. Insurers are trying their best to maintain abrasion degrees low by giving inducements directly and indirectly. If the service taxation load is passed on to the agents, it will impact their income levels, which may take to higher attrition, state industry watchers.