If all blocks of income of insurance companies are taxed at same rate of 31 % (corporate tax rate), they are screwed big time.
There effective tax rate is quite low near to 10 % for some and EPS will fall 15 to 20 %. Thats a clear fall in value for me.
Can you please show how you're saying their effect tax rate is 10%? It won't have that much of an impact. They've taxed all incomes of banks at 35% but that hasn't had much of an impact on earnings so far. It also depends on how much of their income is from investments are opposed to core operations.
Anyone else have any take on this?
Banks have and will not show a significant impact because majority of their investment is parked in fixed income which was always taxed at 35 %. Only dividend, CGT and mutual fund took the impact. Hence, relatively less impact.
Insurance companies on the other hand rely heavily on their investment income and that is majorly dividends and stocks as they are long term investors. Most insurance companies will incur losses if you exclude investment income.
Effective tax rate can easily be calculated by tax expense/ PBT. For IGIIL its around 16 % and for AICL its 10 %. Just simply apply 31 % and then see their EPS. You will see the impact.
I don't think personally this will go through as insurance companies are still in early stages. Their core profitability is not massive like banks. Insurance penetration is still one of the lowest in the region as well.
i have gone through Financial Statement of IGI Life, they have around 11 billions of investments in Fixed PIB / TB, and 2 billions in Mutual Funds, while Jubilee Life Insurance have invested 39 billions in PIB/TB, and 23 billions in listed equities / mutual funds.
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