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Govt likely to withdraw service tax on healthcare services
March, 08th 2011

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.

Mukherjee had promised to look into the concerns raised over the levy while addressing a function organised by the Confederation of Indian Industry on Saturday.

The Budget proposal has provoked widespread criticism since the announcement. "This is not service tax, it is a misery tax", said Devi Shetty, chairman of hospital chain Narayana Hrudayalaya.

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.

The medical fraternity has given a call for March 12 to be observed as "Misery Day" in an attempt to put pressure on the government to shelve the proposal.

The government, however, has justified the levy saying it does not affect the common man. "We are talking about central air-condition, not air-condition...Private hospitals (with) central air condition and more than 25 beds will be covered," S Dutt Majumder, chairman of the Central Board of Excise and Customs, had told a post-Budget meet organised by the American Chamber of Commerce.

He had also argued that the proposal was consistent with the move toward a unified Goods and Services Tax under which all services, barring only a few essential ones, would be taxed.

But healthcare experts are not buying the logic saying the tax will impact general public too as falling ill was not an option. "With this the end user, the patients will end up paying much more than earlier," said Prathap C Reddy, founder chairman of Apollo Hospitals Group. "This is detrimental to the concept of preventive healthcare and early diagnosis, which is pivotal to address the mounting burden of chronic diseases and health promotion."

The government has begun a review of the proposal as it needs to finalise amendments to the Finance Bill, which incorporates tax proposals for 2011-12. The Bill is to be taken up for discussion by the Lok Sabha on March 21 and 22, and the government intends to complete the entire process by March 24.

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