LS approves Finance Bill; 5% tax on health care rolled back

LS approves Finance Bill; 5% tax on health care rolled back

The Lok Sabha on Tuesday passed the Finance Bill after Finance Minister Pranab Mukherjee rolled back his controversial 5 per cent "misery tax" on health care and announced a few other tax concessions.

With the passage of the Finance Bill, the Lok Sabha completed the three-stage budgetary exercise amid walkout by the Opposition BJP.

Replying to the debate on Finance Bill, Mukherjee also modified tax proposals relating to ready-made garments, dividend tax, personal computers, printers, mobile phones and auto parts.

"The proposed levy on health care has raised considerable anxiety in this House and outside. The purpose of the levy was not merely to mobilise revenue. It was to pave the way for the introduction of the Goods and Services Tax (GST). However, I have decided to exempt the new levy in its entirety both in respect of services provided by hospitals as well as by way of diagnostic tests until GST comes into force," Mukherjee said.

The announcement of withdrawal of the 5 per cent service tax on services provided by air-conditioned hospitals of more than 25 beds and on diagnostic services was greeted with loud thumping on desks by members as the Minister hoped that it will no more be called "misery tax".

Mukherjee also exempted coking coal used in manufacture of iron and steel from customs duty and reduced duty on CKD (completely knocked down) kits containing re-assembled engine, gear-box or transmission assembly for the manufacture of vehicle.

The minister, however, imposed one per cent additional excise duty and CVD on mobile handsets.

Announcing some relief for the computer industry, the Minister said, "I extend the concessional rate of 5 per cent CVD and nil SAD (special additional duty) to parts of all computer printers imported by actual users...I also exempted certain special parts of personal computers from levy of (special additional duty) of customs."

With regard to direct taxes, the Minister relaxed the norms for companies which shall be entitled to pay tax at concessional rate of 15 per cent on dividends received from overseas subsidiaries.

The proposal on health care, mooted by the minister as part of the budget for 2011-12 on February 28, had evoked sharp reactions from various groups, including eminent doctors, who had dubbed it as "misery tax".

During the general discussion on the Budget last week, almost all political parties wanted the finance minister to withdraw the health care service tax proposal.

Referring to the concern expressed by small scale garment manufacturers on 10 per cent excise levy on branded ready-made textiles garments, Mukherjee proposed to enhance the abatement from 40 per cent to 55 per cent of the retail sale price.

With this relief, a unit will continue to be eligible for SSI exemption in 2011-12 even if it had a turnover based on retail sale price of Rs 8.9 crore in the current year, the Minister said.

The garment traders had criticized the proposed 10 per cent excise duty on readymade garments saying it would hurt the small business.

"I would also like to reiterate that the levy does not apply on unbranded goods... it does not apply to made for order retail customer," the Minister said, adding that the proposal was aimed at preparing the ground for implementation of the GST.

On the reduction of basic customs duty on raw silk from 30 per cent to 5 per cent ad valorem, he said, there has been representations supporting and opposing the move.

The government would keep a close watch on import volumes and domestic prices and respond, if required, to mitigate any impact on the domestic sericulture sector, the Minister said. 

Govt introduces Constitution Bill in LS for GST

The govt on Tuesday introduced a Constitution Amendment Bill in the Lok Sabha to facilitate implementation of the Goods and Service Tax (GST), an indirect tax regime that would subsume levies like excise, service tax and sales tax.

The Bill, introduced by Finance Minister Pranab Mukherjee seeks to amend the constitution with a view to confer simultaneous powers on centre and states to levy taxes on goods and services.

"The GST would replace a number of indirect taxes presently being levied by the central government and the state governments and is intended to remove cascading of taxes and provide a common national market for goods and services", said the statement of objects and reasons of the Bill.

The Bill provides for creation of a GST Council to be headed by Union Finance Minister.

The Council will be empowered to recommend tax rates and exemption and threshold limits for good and services.

Besides, the bill proposed a GST Dispute Settlement Authority to deal with grievances of the centre and the state with regard to GST.

The GST, which is considered to be a major tax reform, has been pending for the last four years due to differences between centre and some states over the structure of the new tax regime.

It will facilitate implementation of a new tax regime that subsumes levies like excise, sales and service tax.

The GST, which is considered as a major tax reform, has been pending for the last four years due to differences between centre and some states over the structure of the new tax regime.

"The decision to table the bill is a positive development. The Finance Minister was committed to bring it in the current session and he is doing that," Ernst and Young Tax Partner Harishanker Subramaniam said.

The Finance Ministry has worked on the final draft Constitution Amendment Bill, the fourth since the discussions on the new tax regime commenced.

Earlier, the first three drafts prepared by the Centre were rejected by the states citing autonomy issues.

The fourth draft, a hybrid of the second and third draft, has proposed setting up of a modified GST council through a presidential order for taking decisions on all important matters.

In addition, the composition of the GST Dispute Resolution Authority, proposed to be a part of the Constitution Amendment, will be decided by Parliament.

Furthermore, petroleum, natural gas, diesel and ATF have been kept out of the GST ambit in the final draft.

Last year, a draft Constitution Bill proposed by the Centre to the states had suggested a council chaired by the Union Finance Minister, with states as members, to make changes in GST.

The states, especially NDA-ruled ones, had raised objections to the proposal, saying it would give veto power to the Union Finance Minister over state taxation issues.

The Centre subsequently provided another draft to states, suggesting that changes in GST could be made only if there was a consensus on those issues in the council.

However, some state finance ministers did not agree to even this suggestion.

Taking into consideration the states' concerns, the Finance Ministry had then floated a third draft on the GST Constitution Amendment Bill.