Healthcare & Education: Special focus calls for special tax breathers

Healthcare services are defined in a restrictive manner to cover services by way of diagnosis, treatment and care and no exemption is available for services offered for aesthetic / beauty enhancement purposes.

Written: Rajeev Dimri

The last Budget speech delivered by finance minister Arun Jaitley was based on the agenda of ‘transforming India’ with the help of nine distinct pillars. Education and healthcare are two of these nine pillars, which affirms the government’s understanding of the importance of these sectors in stimulating the progress of India. This begs the question as to whether these sectors are being given enough impetus from a tax standpoint. Also, it becomes imperative to ask as to whether sufficient deliberation is going on with the government to ensure that these sectors receive their desired status in the impending Goods and Services Tax (GST) regime.

Speaking of the education , from indirect tax standpoint, both the central and state governments have tried to provide incentives to boost this sector and lessen the burden of taxes. To elaborate, under the central laws, services provided by schools, recognised educational institutions and vocational institutes are exempt from service tax. Further, no excise duty is levied on printing of educational books and full exemption is provided from customs duty on import of books. Under the state value added tax (VAT) laws, sale of educational books and materials is exempt from levy of VAT. While sufficient exemptions have been given to the education sector, only few have been provided on procurements by educational institutions. This leads to build-up of input side taxes, eventually leading to an increase in the cost of delivering education. This in some sense, stands in the way of larger government objective of making education accessible for all.

Similar challenges are being faced by the health sector which also enjoys exemptions / concessions on its output supplies, however, is not eased off with the input side tax costs. Presently, healthcare services provided by all types of clinical establishments are exempt from levy of service tax. However, healthcare services are defined in a restrictive manner to cover services by way of diagnosis, treatment and care for illness, injury or deformity etc. No exemption is presently available for services offered for aesthetic / beauty enhancement purposes. This leads to disputes as to when can a treatment be called for curing illness or beauty enhancement, especially in areas such as cosmetology, dermatology, dentistry etc.

Apart from the above major roadblocks in their growth, both the sectors also continue to face some issues with respect to classification, taxability, valuation, etc. For instance, classification of e-books as goods or services has become a major bone of contention between the taxpayers and revenue authorities. While the service tax authorities try to categorise downloading e-books as taxable services, VAT authorities demand VAT on such e-books distinguishing them from printed books (which are exempt). Further, which courses and institutes are eligible for exemption has long been a matter of debate. For instance, there was a confusion as to whether present exemption available to institutes offering qualification recognised by any law would also be available to fellowship programmes offered by IIMs. To resolve this confusion, in this Union Budget 2016, it was clarified that such programmes are to be treated akin to MBA degrees offered by IIMs and hence, the present exemption would be available for such programmes also. However, similar classification issues continue to arise in respect of other courses offered by other institutions in this sector. Likewise, in healthcare sector, disputes arise with respect to levy of VAT on medical supplies by hospitals during treatment of indoor patients, levy of luxury tax on various facilities provided by hospitals, to name a few.

Given the above challenges, the need of the hour is to instill a genuine spirit of providing impetus to these sectors with the relevant tax authorities, rather than getting entangled in minor technical issues leading to unending tax controversies. GST can offer the best platform to achieve this utopian situation. Presently, at various forums, the finance ministry has stated that exemptions would be minimal under GST. Therefore, continuity of present exemptions provided to education and health sector remains doubtful under the GST regime.

In parallel, efforts must be made to unburden these sectors from frivolous tax issues with respect to classification, valuation etc. For this purpose, uniform classification norms and tax rates must be provided for output supplies of these sectors (such as, books, e-books, medical devices, their parts and accessories, drugs and medicines, etc) across all state GST laws.

In recent times, the government has taken several initiatives in the education and healthcare sector. This includes enacting right to Free Compulsory Education Act in 2010, recent announcement of New Health Protection Scheme in Union Budget 2016 which aims to provide health cover up to rupees one lakh per family, announcement of National Dialysis Services Programme, etc, to name a few. However, there is still lot of work remaining to be done in these sectors. Given the important role education and healthcare sector play in developing India and the rate at which these sectors are evolving and coming up with new business models (such as providing medical advice online, online coaching), it becomes imperative for the government to provide adequate tax incentives and clarifications presently as well as under GST regime to reduce ambiguity and unnecessary litigation in these sectors. The tax incentives coupled with adequate infrastructure and congenial policies can ensure these two sectors prove to be a strong limb to support ‘transformed India’.



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