The outcry against the Budget proposal to levy a 5 per cent service tax on the high-end health care system in India is in inverse proportion to the logic that is contained in it. The Indian Medical Association has described the tax as being comparable to the salt tax of the Gandhian era. A doctor as famous for his charity as for his deft use of scalpel has called it a “misery tax”. I do hope the government will not be swayed by such name-calling which is not uncommon in fiscal parlance. At the initial stage, the value-added tax (VAT) was called “the most unloved tax”. It was also compared to Matahari (tempting and elusive). But now VAT is the most prevalent tax in many parts of the world. Once good sense dawns, all this name-calling will be forgotten.
The no-tax campaign has been orchestrated by doctors (who have even asked citizens to gather near the Governor’s house in every state), hospitals, federations and confederations of chambers of commerce and industry and even a few kind-hearted economists.
I have called it upmarket or high-end health care only to use one terminology for the whole lengthy description referring to the extension of health services provided by a centrally air-conditioned establishment having more than 25 beds etc. Much of the criticism by the campaigners has been directed against the fact that the government is targeting the use of air-conditioners. They argue that an air conditioner is not a luxury but a necessity in a hospital. This argument is totally misplaced. It is not as though the tax is being levied on the service of air-conditioners. The air-conditioner is just a part of the definition, much like the existence of more than 25 beds, for classifying these hospitals as being different from those that are not taxable. The idea is to impose a tax on hospitals that are generally frequented by the rich and the upper middle class and sometimes by the “middle middle” class. Other hospitals are generally frequented by the “middle middle” class, lower middle class and the poor. This is only a method of classifying taxable and non-taxable services. Nothing more must be read into this.
Hospitals use a lot of taxable services such as telephone, insurance, machines and materials for which they can claim input tax credit if they pay the proposed service tax on health care. In fact, after adjustment they will stand to gain if they get the unutilised credit now lying with them. If the credit is less than 5 per cent, say, 3 per cent, then they might as well charge only 3 per cent from the clients. It will be petty tax but the tax chain will remain unbroken, which is essential for a seamless goods and services tax (GST). All chambers of commerce ask for a seamless and simple GST when it comes to a seminar on GST. But when it comes to exemption, they are also the first ones to ask for it, as in this case. The truth is there is a contradiction in approach.
If the no-tax campaigners choose to call it a misery tax, then one must analyse what brings patients greater misery. Blatant over-billing is the other part of the story. For the same eye operation, it costs considerably more if the patient is insured. This shows there is no sanctity of the bill. Each one of us has a story to tell in this connection. If this tendency is reduced by even 3 per cent, then the service tax can be accommodated easily.
A tax of Rs 10,000 given as an example is at the highest end. The lowest end is just Rs 25 to Rs 35. Nearly 80 per cent of the cases are covered under outdoor treatment for which doctors charge Rs 500 to Rs 700.
Now look at examples from all over the world. In the European Union, though the standard exemptions under the Sixth Directive include health care, many countries have started taxing them. Professor Sijbren Cnossen has said in his treatise titled “Tax Policy in the European Union”, 2001 (p24) that the exemption on health care hardly stands up to scrutiny. Many countries, such as Japan and New Zealand, have a seamless GST with no exemptions, and economists rate them as the best.
If people can pay taxes for their incessant use of mobile phones, does it stand to reason that they should cry foul if they are asked to pay taxes for health care?
The conclusion is that for a seamless GST, there is a need for an attitude to cut exemption, even for health care. Health care tax is not a tax on misery but it is a tax on the treatment of misery of patients who go to high-end hospitals which they can afford because of insurance or otherwise.
The writer is former member of Central Board of Excise and Customs
