How Does GST Affect Your Insurance Premium?
The impending Goods and Services Tax (GST) has many Malaysians wondering about what will increase in price and what will not.
Unfortunately, consumers will soon be paying more for insurance products as insurance premiums for medical, fire, motor vehicle, permanent disability and group personal accident coverage are currently tax-free. With GST, insurance premiums will be taxed an additional 6%.
GST is part of the Government’s tax reform programme to enhance the effectiveness of the existing taxation system. Currently, only 1.8 million of 30 million Malaysians pay taxes. The new taxation will increase national revenue by an estimated RM5 billion to RM6 billion every year.
In general, the supply of life insurance and family takaful are GST exempt, while all other insurance policies (medical, fire, motor, accident, etc.) are standard-rated. However, while the basic life insurance policy is tax-exempt, the rider plans that complement the policy are taxable.
The main riders include medical insurance, personal accident and critical illness coverage on the life insurance policy.
Under the new tax system, a consumer who has a basic life insurance policy could end up paying higher insurance premiums or see a reduction on the cash value entitlement, which the policy has generated over time.
If policyholders are not well-prepared for the changes that ensue, it could result in a higher possibility of lapses in policies.
If your insurance premium is charged for the period of 1 July 2014 to 30 June 2015, GST will be charged for the period of coverage from April 1, 2015 onward.
Despite the commotion surrounding the imminent price hike with GST, the additional 6% charge will not affect insurance policy holders significantly.
For example, if you’re paying RM4,800 for your yearly insurance premium, a 6% increment would simply mean you would be paying an additional RM288 in a year, or RM24 more in a month.
GST, which is part of the Government’s tax reform programme, is expected to increase national revenue by up to RM6 billion every year.
The boost in national revenue will enable the Government to finance social economic development, especially in providing better infrastructure, education, welfare, healthcare and national security that will benefit all Malaysians.