Hospital companies lukewarm to rural proposal

Hospital companies have given a cold shoulder to the finance minister's attempt to increase the penetration of medical services in rural areas by announcing a five year tax holiday for new hospitals (with at least 100 beds).

Senior executives at leading hospital chains said the announcement would not induce the companies to set up new ventures in rural areas.

"The proposal would have been ideal had the tax benefits been extended to hospitals in other areas. This would have a positive impact on the overall cost of healthcare," Habil Khorakhiwala, chairman and managing director of Wockhardt said.

"There are other issues involved in setting up a hospital and it is a volume business. In fact, in city hospitals, rich patients enable us to subsidise the cost of treating poor patients. This benefit far exceed the tax benefit being offered. Moreover, doctors should be motivated to work for rural hospitals and a steady supply of equipment and medicines should be made available at a subsidised rate in rural areas. The issue of viability of running a hospital in a rural area largely remains un-resolved," P Bhatia, manager administration at Bhatia Hospital said.

The budget proposed to insert a new sub-section in 80-IB to provide that the the profits derived by an undertaking for running a hospital in the rural area shall be eligible for deduction of 100 per cent of such profits and gain.

The scheme will be applicable to hospitals constructed during the period beginning October 1, 2004 and ending March 2008.

The amendment will take effect from April 1, 2005 and will apply in relation to assessment year 2005-2006 and subsequent years.

Apollo Hospitals also said that they do not intend to open new hospital projects in rural areas.