Proposed new tax rates may impact LIC valuations : Experts

Sarkaritel
By Sarkaritel February 1, 2020 20:03

Proposed new tax rates may impact LIC valuations : Experts


Chennai, Feb 1 Union Finance Minister Nirmala Sitharaman, announcing the disinvestment of Life Insurance Corporation of India (LIC), has scored a self goal against that proposal with her new tax slabs that would impact sales of insurance policies and valuation of insurers, said experts.

The new personal income tax slab announced by Sitharaman will impact the valuation of all insurers – life and general – including LIC, they said.

Presenting the budget for 2020-21 in the Parliament on Saturday, Sitharaman while retaining the old rates for personal income tax also announced a reduced rates for individuals who do not want any tax savings schemes.

“It will be a big blow for the insurers as insurance cover is sold and not bought. Tax payers buy insurance covers – life and health – in order to save tax outgo. When there is an option, then the general human tendency is not to buy insurance,” practicing chartered accountant P.S. Prabhakar told IANS.

“When the top line of insurers is affected then the enterprise valuations would also get impacted. Seems the Finance Minister has scored a self goal with the new tax slabs while announcing the government’s plans to divest a part of its holding in LIC,” Prabhakar said.

In her budget speech Sitharaman on divestment said: “Listing of companies on stock exchanges discipline a company and provides access to financial markets and unlocks its value. It also gives opportunity for retail investors to participate in the wealth so created.”

“The government now proposes to sell a part of its holding in LIC by way of Initial Public Offer (IPO),” Sitharaman said.

A senior insurance industry official told IANS preferring anonymity: “Health and life insurance policies are bought mainly as a tax saving measure. Now there seems to be a disincentive for an individual to buy such insurance covers thereby putting his family finances at risk.”

The two also said one of the casualty of the new tax proposal would the Charitable Institutions as people do make donations to them for getting tax exemptions.

“These institutions do what the governments don’t do. And for funds they are dependent on donations. Now the government is sort of plugging that route,” Prabhakar said.

According to him, such tax proposals are fine in countries where there is strong social security system, whereas in India a person has to fend for himself during his old age. And compulsory tax saving schemes during his younger age is his social security during his old age.

“There is no guarantee that the government would continue with the old systems and can very well scrap the same in the future, Prabhakar said.

Sarkaritel
By Sarkaritel February 1, 2020 20:03