FM withdraws proposal for service tax on AC Hospitals and Diagonistic services

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Bowing to demand from all quarters, Finance Minister Pranab Mukherjee on Tuesday announced withdrawal of the proposed 5 percent service tax on airconditioned hospitals with more than 25 beds and on diagonistic services.

He also provided some relief to readymade garment manufacturers by raising the abatement available for levy of taxes on retail price of some branded garments and textile made-ups.

“The purpose of the new levy (healthcare) was not merely to mobilise revenue, but to pave the way for introduction of the 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 while moving the Finance Bill in the Lok Sabha for consideration and passage.

The announcement was greeted with loud thumping of desks by members as the Minister hoped that it will no more be called “misery tax”.

Both these proposals, mooted by the Minister as part of the budget for 2011-12 on February 28, had evoked sharp reaction from the interest groups.

During the general discussion on the Budget last week, almost all political parties wanted the Finance Minister to withdraw the healthcare service tax proposal, which was dubbed as “misery tax”.

The garment traders had criticised the proposed 10 percent excise duty on readymade garments saying it would hurt the small business.

“To address this concern, I propose to enhance the abatement of 40 percent to 55 percent on 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.

Under the revised norms, 10 per cent excise would be levied on 45 per cent of the tariff value of retail price on branded readymade garments as against 60 percent proposed in the original budget proposal.

Mukherjee, however, retained his proposal to extend 18.5 percent Minimum Alternate Tax (MAT) on SEZ developers and units.

With regard to the proposal to reduce basic customs duty on raw silk from 35 percent to 5 percent, the Minister said it was aimed at augmenting the supply to weavers in both handloom and the powerloom sector.

Pointing out that he had received divergent opinions on the tax initiatives for the sector, he said, “I would like to assure the House… and respond, if required, to mitigate any adverse impact on the domestic sericulture sector.”

Referring to the financial sector reforms, the Minister said, the government proposes to pursue three more financial sector legislations — PFRDA Bill, the Bill on Factoring and Assignment and the State Bank of India Subsidiary Bank Law Amendment Bill — in the coming days.

Mukherjee had earlier in the day tabled, the Banking Law Amendment Bill 2011 and the Constitutional Amendment Bill for introduction of Goods and Services tax (GST).

On the crisis emanating from political uncertainties in Middle East and Libya, Mukherjee said the country can withstand the impact of such crisis.

“We hope for an early and peaceful resolution of the disturbing developments in the Middle East and in Libya. I am prepared for uncertainties in the globalised world,” he said.