Pranab Mukherjee rolls back misery tax on health care

Bowing to widespread demands from within and outside Parliament, finance minister Pranab Mukherjee on Tuesday rolled back the controversial 5% "misery tax" on health care, diluted the excise duty levy on branded garments and promised further reliefs on some other tax proposals.

"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," he said, moving the Finance Bill, 2011 for consideration in the Lok Sabha.

   

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

The proposal, mooted by the minister as part of the budget for 2011-12 on February 28, had evoked sharp reaction 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 garments and made-ups of textiles, Mukherjee proposed to enhance the abatement from 40 per cent to 55% 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 Rs8.9crore in the current year, the Minister said.

The garment traders had criticised the proposed 10% excise duty on ready made garments saying it would hurt the small business.

           
On the reduction of basic customs duty on raw silk from 30% to 5% 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.

Mukherjee, however, retained his proposal to extend 18.5% Minimum Alternate Tax (MAT) on SEZ developers and units.   Referring to suggestions about many other proposals, Mukherjee said, he intends to address them in his reply to the discussion on the Finance Bill.

"I would like to emphasise the importance of staying our course on the tax reforms, the enactment of the Direct Taxes Code (DTC) and the Constitutional amendment to facilitate the implementation of the GST from the next fiscal year.

           

"Half-measures in these reforms, by insisting on concessions and exemptions will only add to the complexity and distortions of the tax regime, which will compromise the intended benefits from these measures," the minister said.

           
At the outset, the minister referred to the devastating earthquake and tsunami in Japan and the implications it has for the global market.

At the same time the growing political uncertainty in the Middle-East and Libya has profound implications for the global oil markets and for the fuel-oil costs and inflation in

the Indian economy.

"Even as we plan and prepare for the uncertainties in a globalised world, I want to emphasise that there will always be events that one cannot anticipate or plan for", he said, adding "we need to do more when the going is good."

           
Maintaining that it was this thought that guided him in his proposals for the budget, Mukherjee said, he opted for a significant fiscal consolidation when he could afford to do so without dislocating the growth momentum.

It would also help in strengthening the domestic medium term macro-economic environment.

The Finance Minister said at the same time, the government has outlined the significant legislative agenda for reforms in the financial sector.

The government, he added, would 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 Constitution Amendment Bill for introduction of GST.