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Rediff News  All News  » Business » Healthcare sector unhappy with the service tax

Healthcare sector unhappy with the service tax

March 02, 2011 12:41 IST

Service tax of 10per cent is levied (effectively 5per cent, after factoring in 50per cent abatement) on all services provided by the hospitals with 25 or more beds, which have central air-conditioning facility.

Further, extended the levy to diagnostic tests of all kinds with the same rate of abatement. However, all government hospitals shall be outside this levy.

Reduction in central excise duty on sanitary napkins, baby and adult diapers from 10 per cent to 1 per cent.

Endovascular stents are being fully exempted from basic customs duty of 5per cent.

Further, 5 per cent basic custom duty and NIL SAD is being prescribed on specified material for the manufacture of syringes, needles, catheters, cannulae on actual user basis.

P&P (Patent & proprietary) medicines for retail sale are exempted from SAD (Special Additional Duty).

Health budget increased by 20per cent to 26,760 crore for the 2011-12. Further, Rashtriya Swasthya Bima Yojana has emerged as an effective instrument for providing a basic health cover to poor and marginal workers.

It is now being extended to MGNREGA beneficiaries, beedi workers and others.

In 2011-12 and extend this scheme to cover unorganised sector workers in hazardous mining and associated industries like slate and slate pencil, dolomite, mica and asbestos etc.

Industry Expectations:

Infrastructure status should be granted to healthcare industry and tax holiday benefit provided accordingly: Not fulfilled

Incentivise existing hospitals to get accredited through automatic empanelment in government schemes, cashless insurance transactions etc.: Not fulfilled

Government should join industry's initiative for deeper penetration of insurance in addition to the efforts already on for below poverty line (BPL) category.: Partly fulfilled

Public Private Partnership should be encouraged in Healthcare: Not fulfilled

Grant tax holiday for speciality ambulatory hospitals: Not fulfilled

Budget Impact:

The 5per cent service tax (effectively on whole amount) on services on Private hospitals with 25 or more beds have central air-conditioning facilities and to diagnostic tests of all kinds make the health services costlier to the patients as the hospitals tend to pass the same to the patients.

Interestingly, majority of the people in this county are served by the private players and impacts the most.

The 5 per cent basic custom duty on specified material for the manufacture of syringes, needles, catheters, cannulae is also set to be passed on to patients.

The increase in the allocation to Healthcare budget by 20per cent to 26,760 crore (Rs 267.6 billion) for the 2011-12 will improve healthcare needs in the government hospitals.

Despite of the significant allocation to the Public health sectors government lacks proper strategy of implementation all these schemes which may not show visible impact near future.

However the healthcare insurance has also been extended to MNREGA beneficiaries, Beedi workers and others. This will increase the penetration of healthcare insurance in India.

Scrips to Watch:

Apollo Hospitals, Fortis healthcare


The Union budget 2011-12 impact on healthcare industry is negative. Its once again disappointed as the infrastructure status is not granted.

Further, bringing the private hospitals under service tax regime bulges the patients bill.

However, the 20per cent increase in public health budget is significant move but government lacks the proper strategy to implement the same.

The 5 per cent basic custom duty on specified material for the manufacture of syringes, needles, catheters increases the costs to the hospitals and patients.

Overall the budget is negative for the health care sector.


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