The GST Council, which reviews the goods and services tax levied on specific items and categories, has thoughtfully reduced the tax on a few cancer drugs and on educational institutions’ R&D services. But for reasons that are still cloudy, the council has also given cholesterol a boost by reducing the rate on fried snacks to 12 percent and rewarded high-fliers by cutting the GST on helicopter rides that are charged per seat to 5 percent. Meanwhile, it has kept the rate on life and health insurance premiums at a high of 18 percent. There was considerable expectation that the insurance levy would be rolled down, especially after Union minister Nitin Gadkari noted in a letter that a high tax on such services ate into the retirement savings of the elderly.
The GST Council has now referred the issue to a ministerial panel with the vague assurance of re-examining it in November. The rationale for sidestepping the issue at the moment seems to be opposition from the states. It should be pointed out that insurers are allowed to keep the benefits of a GST reduction and not pass it on to consumers. These companies raised premiums during the Covid pandemic, but failed to reduce them once the effect of the virus abated. Government spokespersons say there is no anti-profiteering law that can be used to compel health insurers to pass on GST benefits.
However, a closer look reveals that state governments are not keen to let go of a goose that lays golden eggs. In the last financial year, GST on health and life insurance yielded a massive Rs 8,200 crore, half of which went to the states. On the other hand, a tax on health cover cannot be treated as a mere revenue concern. It’s elitist to lower tax for chopper fliers but heavily charge life covers.
The Niti Aayog has pointed out that 30 percent of our population has no access to financial support when an earning family member dies, or at a time of illness and hospitalisation. In a country where average income is low and high-quality health services unaffordable, it is essential to stretch the safety net of health insurance to cover everybody. As for passing on GST benefits to consumers, it would not be difficult if the government sets its mind on it.