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5% Service tax on health care rolled back, LS approves Finance Bill
March, 23rd 2011

The Lok Sabha on Tuesday passed the Finance Bill after Finance Minister Pranab Mukherjee rolled back his controversial 5 per cent "misery tax" on health care and announced a few other tax concessions.

With the passage of the Finance Bill, the Lok Sabha completed the three-stage budgetary exercise amid walkout by the Opposition BJP.

Replying to the debate on Finance Bill, Mukherjee also modified tax proposals relating to ready-made garments, dividend tax, personal computers, printers, mobile phones and auto parts.

"The proposed levy on health care has raised considerable anxiety in this House and outside. The purpose of the levy was not merely to mobilise revenue. It was to pave the way for the introduction of the Goods and Services Tax (GST). However, I have decided to exempt the new levy in its entirety both in respect of services provided by hospitals as well as by way of diagnostic tests until GST comes into force," Mukherjee said.

The announcement of withdrawal of the 5 per cent service tax on services provided by air-conditioned hospitals of more than 25 beds and on diagnostic services was greeted with loud thumping on desks by members as the Minister hoped that it will no more be called "misery tax".

Mukherjee also exempted coking coal used in manufacture of iron and steel from customs duty and reduced duty on CKD (completely knocked down) kits containing re-assembled engine, gear-box or transmission assembly for the manufacture of vehicle.

The minister, however, imposed one per cent additional excise duty and CVD on mobile handsets.

Announcing some relief for the computer industry, the Minister said, "I extend the concessional rate of 5 per cent CVD and nil SAD (special additional duty) to parts of all computer printers imported by actual users...I also exempted certain special parts of personal computers from levy of (special additional duty) of customs."

With regard to direct taxes, the Minister relaxed the norms for companies which shall be entitled to pay tax at concessional rate of 15 per cent on dividends received from overseas subsidiaries.

The proposal on health care, mooted by the minister as part of the budget for 2011-12 on February 28, had evoked sharp reactions from various groups, including eminent doctors, who had dubbed it as "misery tax".

During the general discussion on the Budget last week, almost all political parties wanted the finance minister to withdraw the health care service tax proposal.

Referring to the concern expressed by small scale garment manufacturers on 10 per cent excise levy on branded ready-made textiles garments, Mukherjee proposed to enhance the abatement from 40 per cent to 55 per cent of the retail sale price.

With this relief, a unit will continue to be eligible for SSI exemption in 2011-12 even if it had a turnover based on retail sale price of Rs 8.9 crore in the current year, the Minister said.

The garment traders had criticized the proposed 10 per cent excise duty on readymade garments saying it would hurt the small business.

"I would also like to reiterate that the levy does not apply on unbranded goods... it does not apply to made for order retail customer," the Minister said, adding that the proposal was aimed at preparing the ground for implementation of the GST.

On the reduction of basic customs duty on raw silk from 30 per cent to 5 per cent ad valorem, he said, there has been representations supporting and opposing the move.

The government would keep a close watch on import volumes and domestic prices and respond, if required, to mitigate any impact on the domestic sericulture sector, the Minister said.

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