There is some relief for the common man as Finance Minister Pranab Mukherjee on Tuesday announced in Parliament the withdrawal of the newly levied service tax on healthcare.

Some Indian Newspapers  had reported March 18 that the government would roll back some of its tax proposals, including service tax on healthcare services.

Finance Minister Pranab Mukherjee had in Budget 2011-12 proposed extending service tax on diagnostic tests and medical services provided by a centrally air-conditioned hospital that has 25 beds or more. He, however, allowed a 50 per cent abatement, so that the tax rate would work out to 5 per cent.

While the rationale was to complete the tax credit chain, it came in for public and industry criticism. Significantly, the National Human Rights Commission also expressed its disapproval.

The Finance Ministry is also planning to provide some relief to garment manufacturers hit with a 10 per cent excise levy. This could either be lowered, said sources, or set off against the Central excise duty paid.

The government is likely to withdraw the service tax imposed on healthcare services in the Union Budget for 2011-12 following a strong reaction from the public and the medical fraternity.

“A review is on…The government is looking at a rollback,” a finance ministry official said.

Finance minister Pranab Mukherjee had proposed to levy a 10% service tax, with an abatement of 50%, on treatment carried out at hospitals with 25 or more beds with central air conditioning and diagnostic test services.

As of now, service tax is levied only on health check-ups carried out by hospitals for employees of business entities and health services offered under insurance schemes.The Indian Medical Association has demanded withdrawal of the proposal in an open letter addressed to Prime Minister Manmohan Singh. “Such efforts of the government to earn revenue from the misery of its citizens remind us of the salt tax imposed by the British regime on innocent citizens,” the open letter said.

Finance minister Pranab Mukherjee proposed amendments in service tax and extended it more areas. Earlier, 117 segments were under service tax, now the unchanged rate of 10% tax on services will be levied on 320 more which is amajor concern for the hospitals coming up in the country.

But   sources indicate that  healthcare service providers today asked the government to roll back the proposed service tax on treatment in private hospitals and tests in diagnostics labs, saying the move will only burden the common man.  Apart from the service tax on hospitals and diagnostics centres, the Union Budget for 2011-12 has also raised excise duty on medicines and medical equipment from 4 to 5 per cent which could pave the way for medicine price increases.

Earlier Healthcare  Companies termed the amendment as ambiguous, impractical and illogical’ by experts in the healthcare industry as it will make healthcare all the more costlier than it is today.

As per amendments in the budget, service tax has been widened to cover some categories of hospitals and diagnostic tests. AC hospitals with more than 25 beds have been brought under the ambit of service tax. Healthcare industry experts have termed this as an ‘improper’ step.

As a consequence of service tax — cost of healthcare will go up thereby adversely affecting common man and given the unorganised nature of the industry.

Finance Minister Pranab Mukherjee , in his budgetary proposals, has imposed 5 per cent service tax on treatment in private hospitals, paid either by individuals, insurance companies or firms. The same levy would be applicable to diagnostic tests of all kinds. This will however not be applicable to government hospitals.

Source : Economictimes