The Hindu Business Line : Maintain service tax rate at 8 pc: ICAI

THE Institute of Chartered Accountants of India (ICAI) has urged the Finance Minister, Mr P. Chidambaram, to maintain the rate of service tax at 8 per cent, stating that an increase in the rate to 10 per cent would lead to cost-push inflation.

Besides bringing 13 more services under the service tax net, the Finance Bill 2004 had proposed an increase in the service tax rate from 8 per cent to 10 per cent. The institute is of the view that an increase in the rate would have a cascading effect in spite of the new input tax credit rules.

"The increase in the rate of service tax is quite steep considering the fact that the incidence of service tax is ultimately borne by the consumer. While appreciating the compulsions and the overall policy directions of the Government, the institute feels that in order to ensure a better rate of voluntary compliance the levy of service tax should be maintained at a rate of 8 per cent only," the ICAI said in its post-budget memorandum.

The ICAI President, Mr Sunil Goyal, has submitted the post-budget memorandum to Mr Chidambaram.

The institute has also urged the Finance Minister to alter the criteria proposed in the Finance Bill 2004 for availing 100 per cent deduction of the profits earned by an undertaking engaged in the business of operating a hospital in a rural area.

To increase the penetration of medical services in rural areas, the Finance Bill 2004 had proposed that profits earned by an undertaking from the business of operating and maintaining a hospital in a rural area would be eligible for 100 per cent deduction so long as certain conditions are met.

The main conditions are that the hospital should be owned by the assessee and constructed during the period beginning on October 1, 2004 and ending on March 31, 2008. Further, the hospital should have at least one hundred beds for patients.

The Finance Bill also held that such deduction would be available for a period of five assessment years beginning from the initial assessment year in which the undertaking begins to provide medical services.

The ICAI, however, is of the view that a 100-bed size hospital in a rural area may not be viable and therefore such a criterion for availing deduction needs to be reviewed.

"The 100-bed condition is perhaps too rigorous and difficult for compliance. If the idea is to provide wide-spread medical services in rural areas then, looking to the economic constraints and also the quantum of investment that may be required for a well-equipped hospital even a 50-bed hospital must be qualified to earn the exemption," the ICAI post-budget memorandum said.

Further, the institute has also suggested that the exemption should be available in any five assessments of the first ten assessment years.