The proposal to enhance the service tax coverage on the healthcare sector on services provided by all private clinical establishments having central air-conditioning and more than 25 beds for in-patient treatment appears to be ill-conceived. To say the least, this is clearly at cross-purposes with the government?s avowed objective of achieving ?universal access to healthcare?. On one hand, the government has increased the budgetary allocation for the healthcare sector by 20% and on the other hand it proposes to enhance the cost of private healthcare delivery when close to 70% of healthcare delivery in India is being done by private parties.
It is pertinent to note that a hospital/clinic would have input side CENVAT credit on the various inputs/input services procured by it and thus would be able to use such credit against this potential service tax liability ? thereby neutralising the impact of this proposed new levy on the hospitals. Similarly, for the insurance companies paying for healthcare services, the service tax to be charged by hospitals would be available as input credit against the insurance companies? output service tax liability ? thereby neutralising the impact of this proposed new levy on the insurance companies as well. Unfortunately, in a scenario not covered by health insurance, the individual patient would have no such option to neutralise the service tax impact and would merely have to pay more for healthcare ? almost an antithesis of the avowed objective of achieving ?universal access to healthcare?.
Even from a GST compatibility perspective, this proposal appears to be ill-begotten. The report of the ?task force on the Goods and Services Tax? of the 13th Finance Commission, while summarising their recommendation on exemptions from GST, recommend to include non-governmental health services in the list of common exemptions. Even under the GST laws in Canada, healthcare is specifically exempted. Only in a scenario where the entire gamut of healthcare delivery is covered under insurance (a highly unlikely scenario anywhere in the world), taxing healthcare may make sense from a fiscal policy perspective.
Looking at the proposal to levy service tax on healthcare, one may be forgiven for concluding that the government is putting high-end healthcare in the same pedestal as that of high-end restaurants (with liquor licence). It needs to be understood that on several occasions, it is only the private medical care providers who are at the cutting edge of medical technology and in such situations even the non-affluent strata of the society needs to rely on private high-end healthcare ? not as a luxury but as a necessity.
In a country where the reach of even basic healthcare facilities is startlingly limited, the proposal to levy service tax on private healthcare raises questions on the very seriousness of the Government to enhance access to healthcare.
Expectedly, this proposal has led to severe protests and criticisms from various quarters including the Indian Medical Association. One can only hope that better sense prevails and the Government rolls back this proposal to levy service tax on healthcare.
?The author is partner and leader, indirect tax, BMR Advisors. The views are personal (with inputs from Sudipta Bhattacharjee, manager)