Govt may roll back some Budget taxes

Bowing to pressure, the finance ministry may give industry relief from some of the new levies proposed in the Budget.

The ministry, say officials, may partially roll back the proposed levy of service tax on health and diagnostic services.

It may also defer the introduction of service tax on rail freight by another six months, as West Bengal, Railway Minister Mamata Banerjee's state, is going for elections in April.

The ministry is also considering the demand for rolling back the customs duty on automobile parts. Officials say the ministry is likely to roll back the proposed 5 per cent service tax on diagnostic services.

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However, the tax on centrally air-conditioned hospitals with over 25 beds and services provided by doctors at such hospitals is likely to stay.

Officials, however, said such hospitals could be given tax waiver on services offered to the economically weaker sections at a discount.

"Our information says about 80 per cent people who go to such hospitals have insurance cover. So, we are bringing only the remaining 20 per cent in the tax net. If a clinical establishment is willing to provide services to the poor at concessional rates, we are willing to waive the tax," said a finance ministry official.

The tax on health services is expected to generate an annual revenue of Rs 500 crore (Rs 5 billion). The tax on diagnostic services may add another Rs 200 crore (Rs 2 billion) to the government kitty.

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The official, however, said the intent behind these levies was not revenue generation but completing the tax credit chain.

The ministry is debating whether Cenvat credit should be provided to hospitals. According to estimates, if this is done, the total tax paid by suppliers, hospitals and insurance companies will fall.

Industry is also putting pressure on the government to review the decision to impose additional duty on import of completely knocked down automobile kits.

German automaker Audi has already threatened to move out of India if the duty is not rolled back.

"The Society of Indian Automobile Manufacturers gave a presentation yesterday. We will look into it," said a finance ministry official. He added no decision had been taken so far.

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The ministry may also give in to pressure from the railway minister.

The service tax on rail freight, to be introduced from April 1 after being deferred three times, is likely to be delayed again. The 10 per cent levy is now likely to be introduced from October 1.

In the 2009-10 Budget, the government had proposed levy of service tax on goods carried by the railways to ensure a level-playing field in the goods transport sector.

However, in September 2009, it exempted rail freight to check inflation. In Budget 2010-11, the FM said the exemption would be withdrawn.

But a provision was made for abatement of 70 per cent of the gross value of freight charged on goods.