Finance minister Pranab Mukherjee on Tuesday rolled back the controversial 5% service tax on high-end hospitals and certain diagnostic services. Moving the Finance Bill, 2011, in the Lok Sabha, he said the levy on healthcare had raised anxiety in Parliament and outside. The Bill was later passed by the House.

?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.

The move was welcomed by the healthcare industry. Shivinder Singh, MD, Fortis Healthcare (India), said: ?We welcome the finance minister?s decision to roll back the service tax proposed for the healthcare delivery sector. This positive step will benefit the common man, while providing a boost to the industry.?

Narayana Hrudayalaya chairman Devi Shetty said he was happy with the rollback. Apollo Hospitals Group chairman Prathap C Reddy termed the move as ?progressive? and said there would be renewed efforts from the private health care sector to serve the nation.

Pradip Kanakia, leader, healthcare practice, PricewaterhouseCoopers India, said the finance minister should be congratulated for his bold initiative.

?This will provide much-needed relief to patients who are already reeling from the effects of high inflation,? Kanakia told FE. He said that this positive gesture, coupled with a responsible behaviour by private healthcare players in reducing the cost of treatment and diagnosis, will greatly boost preventive care and early diagnosis, thereby helping control the mounting burden of chronic diseases in India. The announcement of the withdrawal of the 5% service tax on services provided by air-conditioned hospitals of more than 25 beds and on diagnostic services was also greeted with loud thumping of desks by members of Parliament.

The proposal, mooted by Mukherjee on February 28 as part of the Budget for 2011-12, had evoked sharp reactions from various groups, including eminent doctors who had dubbed it a ?misery tax?.

During the general discussion on the Budget last week, almost all political parties wanted the finance minister to withdraw the healthcare service tax proposal.