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Feb 28, 2013, 07.00 PM IST | Source: Moneycontrol.com

Budget Reactions: Surcharge rise on corporate tax to curb earnings: Max Life

Given the current fiscal and economic constraints the Finance Minister was facing this Union Budget 2013-14 is a balanced one with no major surprises.

Rajesh Sud
Max Life Insurance

Given the current fiscal and economic constraints the Finance Minister was facing this Union Budget 2013-14 is a balanced one with no major surprises. The fiscal deficit of 5.2% of GDP in the current financial year is in line with his promise and market expectations. The Finance Minister has also announced his intent to further reduce fiscal deficit  to 4.8% by Financial Year 2014 which indicates the government’s commitment towards greater fiscal discipline. 

With respect to financial inclusion and increasing insurance penetration the Union Budget has disappointed the life insurance industry with no measures taken to incentivise long-term savings and protection. The budget has not provided a separate limit for tax exemption for life insurance and pension or increased the exemption limits under section 80C. Life Insurance plays a critical role in providing long-term funds for infrastructure development by channelising domestic savings and could have helped in funding Rs.1 trillion planned to be invested in infrastructure during the 12th 5 year plan.  

However, the Finance Minister's assurance that Insurance Amendment, and PFRDA  Bills will be presented in this session, and the proposal to set up Standing Council of experts for reforms in Financial sector to compete internationally, shows his commitment towards the financial services sector. 

The budget proposal to allow Insurance and Pension companies to directly trade in debt segment is a welcome move. This will allow institutional participation in the exchange traded bond market.

The Finance Minister has further announced that Banks can now act as brokers to sell life insurance policies. While this will offer a wider array of products to the customer, there is a need to evaluate this on level of market maturity and regulatory evolvements.

KYC of banks being sufficient to acquire insurance policies is also an important step in the direction of financial inclusion as it the potential to reduce paper work if a repository of bank KYC could be created with access to life insurance companies.  

The increase of surcharge on corporate tax would suppress the earnings and could put additional pressure on consumer's if Companies decide to maintain margin's, thereby leading to inflation.

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