MARCH 21, 2011

Service Tax on Medical Services – Is Levy 'brilliant' or 'thoughtless'?

By G Prabhakara Sastry

THE levy of Service tax on Medical Services as proposed in Budget 2011-2012 is receiving strong objections from medical circles and the indications available suggest that the government is inclined to roll back the levy. This is the time for us to appreciate, analyse and conclude whether the claim of the medical fraternity in this regard is justand proper and whether it is fit case for extending the exemption they are insisting.

The strong points being agitated against the levy rise he following aspects.

+ Life saving treatments like heart surgery, cancer treatments, andmany other procedures of complicated and expensivenature are already costing substantial sums of money and addition of 10% by way of Service tax would make them more expensive.

+ Rural debts are mainly attributed to health related problems.

There is really a strong force in these points, and there are enough more number of points to plead for exemption. At the same time, we should also consider the ground realities as prevailing in the medical field. Take the case of a heart surgery. The doctor who is carrying out the surgery is not sacrificing even a rupee while charging his fee, the star quality corporate hospitals providing the infrastructure and expertize never compromise on their impressive cost list. The medicine manufacturers, device makers keep making profits as much as they can. If they are corporates, they are making handsome profits and distributing dividends to their shareholders ad if they are others like individuals, firms etc., they generate somuch of wealth for diversification in to gold, Real Estate, shares and film-making as has been the order of the day., It is worth noting that corporate hospitals, medicine manufacturers and other equipment manufacturers, not to speak of manufacturers of Air Conditioners, Televisions, Ambulances are earning fat profits and distributing rich dividends. When the Health care business is flourishing in such a magnificent manner involving different agencies, why the Government alone should sacrifice their part by way of exemptions and if they should do so, for whose benefit and for whose advantage ?

Even the Luxury room-fitting manufacturers, paint companies and even the Hi-tech food that is serve din such hospitals are making their own share of profit not to mention about the small establishments selling flower bouquets, get-well soon cards and gift sand mementoes intended for the patients and the like. The hospitals are also luring the attendants and visitors of the patients by attracting them for routine Health check up involving huge sums of money, only to assure that health is provided, though at a fabulous cost.

As against the above scenario in such Five star hospitals where the patients are, by and large, paid by third parties like insurance companies or the corporate employers, the only silent spectator not having their share of advantage is the Government! A levy of 10% Service tax on such high cost medical treatment would not make the Hospitals, patients or others poor by any standards. The worst that can happen is that accounts of these hospitals and their activities go under the scanner of Service Tax authorities which are hitherto enjoyed immunity from levy of any other tax.

If the 10% of Service Tax as imposed on high cost hospitals with Central-Air-conditioning facility with more than 25 beds, is literally spent on the medical budget intended for poor and less privileged, there will be a sea change in the facilities and conditions at many of the Government Hospitals. The wonderful experiment undertaken by the erstwhile Government of Andhra Pradesh by the scheme of “Arogyasri” can be strengthened further and many more lower and middle level hospitals can get more funds for modernization, better equipment and expertize in the service of poor. Instead, if the difference between the haves and have-nots continue to be wide and the gap continues to grow, the wealthy persons and that section of people who get their bills paid by the employer or Insurance companies alone can get the costly- quality treatment and none others.

The effort of the government to ensure high quality treatment for some section of poor, by way of conditional exemptions under Customs and Excise to modern hospitals with sophisticated equipment, have yielded less results, with the corporates confining such facilities only to the influential poor like drivers and workers of the rich, the henchmen of the politicians and bureaucrats, and of course, the staff and families of their own work force. This is the time to break this barrier and levy of Service tax is the tool to keep a watch on these hospitals, their potential for revenue generation and of course, a powerful avenue for taxation. We remember the instance in the beginning where the Goods Transport Service was brought into Service Tax net and the powerful lobby of the Transport Sector hat was able to convince the Government to defer its implementation. The subsequent move of the government to shift the levy on to the parties bearing the cost, as against the person providing the service has ensured levy of tax to take place, still making transport lobby satisfied. In this country, nobody would ever welcome tax, but tax is a necessity that has to be borne by everybody to ensure nation building.

As the indications available suggest and the force with which the circulation of mails is taking place, and of course, the strong points made out by eminent medical Professionals like Mr. Shetty of Narayan Hridayalaya, there is every likelihood that their demand attract the attention of the Government to consider certain sops.

It is for us to debate and evoke public opinion on favoure dtreatment to five star medical facilities. I for one feel that in the name of health and other sentiments, all the concerned are allowed to enjoy fruits of profit but denying the government, their legitimate share of taxes. If a direct nexus is established to spend the Service Tax earned on health care Service to be sped only on health care, there can be no reason to withdraw the Tax.

Let us hope that Finance minister would not yield to such pressures only to protect the small section of the highly potential society which can afford a 10% taxation with benefits of Cenvat on various inputs and input services that go into the medical service. This levy, in one way is a threshold point for extension of service tax on doctors as well, who are not different in making money when compared to Lawyers, Chartered Accountants, Architects and similarly placed professionals.

(The author is Senior Consultant, Indirect Taxes, Visakhapatnam)