Bert Paterson, managing director, Aviva Life Insurance

While the finance minister has made significant positive announcements on agriculture, education and health, there is nothing positive for the life insurance sector.

''The budget, this year, is yet another lost opportunity for the insurance sector. We had two big expectations – a distinction between short-term and long-term savings instruments under Section 80 C and carry forward of losses for a long-term gestation business like insurance. Instead, the asset management services for ULIPs have been brought under the service tax net which could have an adverse impact on long-term savings. We will be seeking clarity on this.''

On service tax on asset management charges, the Finance Bill illustration is contrary to the asset management services mentioned by the finance minister during his budget speech. The finance minister, in his Budget speech, spoke about bringing asset management services provided in ULIP's, under the service tax net. The illustration in the Finance Bill however, is contrary to the FM's stated principle, in that it is also illustrating service tax charges on all services, not just fund management.    

Inequitable with MF: This is inequitable with other asset management companies like mutual funds where service tax is charged only on the fund management fees charged by the AMC's.

Long-term savings: The industry had hoped that the finance minister would promote long-term savings by making a distinction between short and long-term savings under Section 80 C. On the contrary, by levying the service tax, the proposal will act as a deterrent to long-term savings as it could result in higher costs for the customer.

Costs of implementation: There will be systems and process implications for companies which too could result in increased costs for the customer. 
In view of this, we would like the finance minister to reconsider this proposal, in discussion with the industry.

Distinction between long-term and short-term savings under Section 80C
We are disappointed that, again, there have been no separate limits for long-term and short-term savings. The world over, long-term saving instruments have been driven by tax exemptions.

Countries like the UK and Ireland provide incentives in form of tax credits even to non-tax payers by topping up their contributions by 20 to 25 per cent and even up to 40 per cent for higher tax payers. If the government does not implement the tax benefit to at least Rs1 lakh each for pensions/ annuity and life insurance, we will see less long-term retirement savings amongst the masses.

The salaried section will be hit badly as the corpus on retirement will be insufficient as most people are investing only Rs.100,000 at present in both long-term and short-term saving instruments.

Over the past few years, the Government has clubbed both long-term (Insurance and pensions) and short-term saving instruments (Mutual Funds/ Bank Deposits) under the same tax treatment. To encourage long-term savings, it is important to have separate limits for each.

Change in carry forward of losses for long-term gestation business
We are disappointed that the government has not considered this critical issue. Insurance business is a long-term gestation business and most insurers do not make profit even in the 10th year of operations. Currently, insurers are allowed to carry forward losses for only 8 years. Insurers would not be able to set off the huge losses incurred during the initial years.