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Health tax goes, but may be back with GST
March, 24th 2011

The Lok Sabha passed the budget proposals minus the 5% service tax on healthcare and diagnostic services provided by high-end hospitals that was withdrawn following widespread criticism.

Finance Minister Pranab Mukherjee , however, indicated the levy, dubbed as 'misery tax', may be back once the comprehensive goods & services tax is rolled out.

"The purpose of the new levy was not merely to mobilise revenue, but to pave the way for the introduction of the GST ," Mukherjee said on Tuesday.

The lower house passed the Finance Bill on Tuesday in the absence of members of the BJP-led National Democratic Alliance, which boycotted the debate seeking a statement by Prime Minister Manmohan Singh on the cash-for-votes scam. With the passage of the Bill, Lok Sabha completed the three-stage budgetary exercise.

Most proposals retained

The finance minister retained most of his other proposals, providing only marginal relief to industries such as automobiles, garments, personal computers and printers. On direct taxes, the biggest concession was in the norms for a concessional 15% tax on dividends received from overseas subsidiaries. As against the minimum 50% India holding in such subsidiaries to be eligible for the tax sop, the finance minister has suggested a lower threshold of 26%, benefiting several firms with overseas joint ventures.
Hopes of the promoters of special economic zones, or SEZs, were dashed when the finance minister decided to retain the 18.5% minimum alternate tax (MAT).

While retaining the 10% excise levy imposed on ready-made garments and textile made-ups bearing a brand name, Mukherjee increased abatement to provide some relief to the industry.

Abatement means only a certain portion of the value and not the entire transaction is taxed.

Similarly, automobile makers will have to make do with the new definition of completely-knocked-down kits that saw import duty rise. The finance minister, however, halved the proposed Customs levy to 30%. Most premium cars manufactured by BMW, Audi, Mercedes-Benz, Volkswagen and Toyota will be costlier now. "There is still lack of clarity on the issue. While as per the government definition, we have to assemble engines, transmission and gear boxes locally that may be commercially unviable due to low volumes," said Vishnu Mathur, director-general of industry body SIAM.

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