Finance Minister rolls backs tax on diagnostic services, hospitals, but only till GST comes into force; duty on CKD automobile kits halved to 30%.
Finance Minister Pranab Mukherjee on Tuesday rolled back the 5 per cent service tax on hospitals and diagnostic services proposed in the Budget. He also halved the Customs duty on completely knocked down (CKD) automobile units.
Replying to a discussion on the Finance Bill, which was passed on Tuesday, Mukherjee, however, warned that the benefits of the proposed Goods and Services Tax (GST) and the Direct Taxes Code would be diluted if exemptions continued to be sought.
The aim of the 5 per cent tax on services provided by centrally airconditioned hospitals with 25 and more beds as well as diagnostic services was not revenue generation but to ease the way for GST, he said.
The levy was being rolled back until GST came into force, he said.
The tax had evoked strong protests. At an industry chamber event after the Budget, noted cardiologist Naresh Trehan had called the move a cruelty. Various opposition members had called the levy a ‘misery tax’. The rollback announcement was greeted with thumping of desks by members.
“With this progressive move to repeal the tax, the country will see our (industry’s) renewed efforts to serve the nation,” said Prathap C Reddy, founder chairman, Apollo Hospitals.
The finance minister also reduced the proposed Customs duty on CKD kits containing pre-assembled engine, gear box or transmission assembly to 30 per cent from 60 per cent proposed in the Budget.
The levy would have harmed luxury car makers. A Mercedes-Benz India official said, “The government has taken the middle path and thus created one more taxation slab. This will increase prices of a few cars, mainly those whose engines come from outside India”.
The finance minister also blunted the impact of 10 per cent excise duty on branded garments by increasing the abatement rate from 40 per cent to 55 per cent of the retail sale price. The finance minister said this would help small garment manufacturers.
“With this relief, a unit would continue to be eligible for the SSI (small scale industry) exemption in 2011-12 even if it had a turnover of Rs 8.9 crore based on retail sale prices in the current year,” he said.
Manmohan Agarwal, director, BigShoe Bazaar India Pvt Ltd, said, “The manufacturers had demanded total relief, irrespective of the turnover. Only small and medium units may get some advantage, but as a whole it will not bring relief to the industry.”
The finance minister also lessened the impact of the move to bring 130 products into the excise duty net by allowing 35 per cent abatement (based on retail sale prices) on many of these items.
| FINANCE BILL PROPOSALS | AMENDMENTS PROPOSED |
| * Reduced tax rate from 30% to 15% on dividends received by Indian companies from foreign subsidiaries in which the Indian company holds more than 50% share capital | * Lowering the holding requirement in the foreign company from 50% to 26%. The move has been welcomed by industry |
| * Mandatory 10% levy on branded ready-made garments and made-ups of textiles with 40% abatement | * Increasing the abatement rate to 55% of the retail sale price so that the overall tax burden comes down |
| * Levy of 1% excise duty on 130 goods | * Abatement of 35% on many of these items |
| * Redefined completely knocked down (CKD) units to exclude pre-assembled engine, gearbox or transmission mechanism from the purview of concessional import duty | * Reducing basic Customs duty from 60% to 30% on CKD kits with pre-assembled engine, gear box or transmission assembly imported for manufacturing vehicles |
He also imposed one per cent “unconditional” excise duty and countervailing duty on mobile handsets. The Budget had proposed an increase in excise duty on mobile handsets from 4 per cent to 5 per cent.
The finance minister also exempted seven specified computer parts from special additional Customs duty.
He also reduced the countervailing duty on computer printers from 10 per cent to 5 per cent and removed the special additional duty of 4 per cent.
The finance minister further sweetened the proposal to charge a lower tax of 15 per cent (as against 30 per cent earlier) on dividends received by Indian companies from foreign subsidiaries by extending the benefit to companies holding 26 per cent or more in subsidiaries as against 50 per cent proposed in Budget.
