|Heart rules the head|
|Thursday, 24 March 2011 00:00|
When the country’s most-respected doctor—Dr Devi Shetty’s skill as a heart surgeon is matched only by his work in making healthcare inclusive—makes a heartfelt plea to axe what he calls the misery tax, it takes a really hard heart to ignore this. Not surprisingly, finance minister Pranab Mukherjee rolled back his proposal to levy a 5% service tax on a certain category of hospitals—others who’ve benefited from Tuesday’s proposals are luxury car units who will now pay half the proposed import duty on CKD kits and there’s a higher abatement for goods that will have now been brought under the excise net. The decision to fix the cutoff for levying the service tax on hospitals that had more than 25 beds, and were air-conditioned, was always a bit curious, but there is little doubt that the tax had to be levied. If making healthcare low-cost is the objective, why levy excise and other taxes on pharma firms; why should barbers pay a service tax when hospitals are to be exempted … a host of such questions arise; indeed, the fact that the manuals on excise and customs exemptions are as voluminous as they are is testimony to the fact that almost any segment of business, even those not represented by doctors with hearts of gold, are able to come up with good enough reasons to get exemptions. Indeed, if the ‘revenue foregone’ by the government on account of such exemptions is added back, India’s tax-to-GDP ratio would be a whopping 22% instead of 17%. Interestingly, as compared to industry, where the excise duty-to-manufacturing GDP ratio is 13.2%, the service tax-service GDP is only 1.7%—so there is a strong case to tax a lot more services.
The Budget was the finance minister’s chance to start cleaning up the exemptions list; indeed, he said the health tax was brought in as a precursor to the idea that everyone would be paying taxes once the GST was brought in. Instead, the finance minister failed to ask everyone to pay service taxes, subject to a negative list and perhaps a minimum turnover; and he rolled back the small attempt he made. All of which makes you wonder about the fate of the GST, for which the government introduced a Constitution Amendment Bill to allow states to levy service tax and the Centre to levy sales taxes. The GST, which could take more than a year till state assemblies ratify the Bill, is, in any case, riddled with problems. It leaves out electricity, petroleum products, real estate, alcohol, entertainment, octroi, and so many more sectors of taxation. If the healthcare tax is anything to go by, it would be interesting to see what happens when, under the GST, all services are to be taxed.