Health plan has a rural touch

Service tax on all services provided by centrally air-conditioned hospitals with 25 or more beds.

Finance Minister Pranab Mukherjee has increased the Plan allocation for the healthcare sector by 20 per cent. He has also extended the Rashtriya Swasthya Bima Yojana to poor and marginal workers and Mahatma Gandhi National Rural Employment Guarantee Act beneficiaries, besides workers in the beedi industry and other unorganised sectors. The benefit will also go to those working in hazardous industries.

However, the minister imposed a service tax on services provided by centrally air-conditioned hospitals with 25 or more beds. “Though the tax is on high-end treatment, I propose to sweeten the pill by an abatement of 50 per cent, so that the actual burden is five per cent of the value of service”, he said.

The minister also extended the levy to diagnostic tests of all kinds,with the same rate of abatement, but kept tests at government hospitals outside this levy.

He also announced concessions for endovascular stents and some life-savings drugs on the Customs side and reduced the excise duty on sanitary napkins and diapers. There is also a one per cent excise duty on vaccines, intravenous fluids and medicaments (including those used in Ayurvedic, Unani, Siddha, Homeopathic and Bio-chemic systems), where there is no Cenvat credit being availed.

While the higher allocation will benefit all stakeholders, the five per cent service tax on hospitals other than government hospitals will cause healthcare costs to go up, say industry experts.

“It is unlikely that hospitals with air-conditioned facilities will absorb this cost”, said Hitesh sharma, healthcare expert with Ernst & Young. “The increased healthcare spend is a step in the right direction. What will be interesting to see is how this will be achieved. The government would do well to focus on insurance schemes and creating public-private partnerships to utilise the existing government healthcare machinery”, said Sunita Maheshwari, co-founder, Teleradiology Solutions. However, the industry is disappointed that the Budget ignored its demand for specific tax and fiscal incentives for companies setting up infrastructure for delivery of healthcare in rural areas. The FM also overlooked the demand for extending tax holiday to hospitals coming up in metros and Tier- I and Tier-II cities.