The government on Monday proposed imposition of 5 per cent service tax on treatment in private hospitals, paid either by individuals, insurance companies or firms, a move described as “detrimental” by industry players.

Bringing about a change in service tax introduced in the last year’s Budget under which payment for treatment by health insurance firms or business houses attracted the levy, Finance Minister Pranab Mukherjee brought payments by individuals also under the net from the next fiscal.

Presenting the Budget for 2011-12, Mr. Mukherjee said service tax imposed on health check up or treatment last year had resulted in differential treatment between persons who make payments themselves and others where payments were made by an insurance firm or a business entity.

“I (therefore) propose to replace it with a tax on all services provided by hospitals with 25 or more beds that have the facility of central air-conditioning,” he said.

He further added: “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 kept at 5 per cent of the value of service.”

Mr. Mukherjee also said the same levy as well as abatement would be applicable to diagnostic tests of all kinds.

“However, all government hospitals shall be outside this levy,” he said.

Reacting to the move, Apollo Hospitals Executive Director—Operations Sangita Reddy told PTI that bringing the hospitals sector under services tax “is a detrimental move as the burden will be passed to the consumer”.

“A majority of the consumers pay from their own pocket as only 14 per cent are covered by insurance. Adding service tax will be a heavy burden on them,” she added.

Expressing similar sentiments, Super Religare Laboratories CEO Sanjeev K Chaudhry said: “While the burden of this levy goes to the customers and patients, the anomaly is that the services of accredited and quality rated labs will become more expensive in eyes of the consumers relative to the small street labs.”

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