New Delhi, July 28, 2017

‘Such expenditure has been held as disallowable and unethical by the CBDT’

Finding tax compliance by private healthcare providers far from robust, the Comptroller and Auditor General of India (CAG) has asked the Income-Tax Department to widen the tax base for the sector.

It has also asked the Department to disallow classification of freebies and referral fees given to doctors as business expenditure.

“The ‘referral fees’ paid to the doctors by private hospitals, nursing homes, diagnostic centres for referring patients and payments made on account of ‘advertisement expenses’ by the medical practitioners were allowed, although such expenditure has been held as disallowable and ‘unethical’ by the CBDT and laws of regulatory bodies,” said the CAG in its performance audit assessment of the Department of Revenue’s reports on private hospitals.
19 cases, Rs.5.56-cr impact

The audit, which was tabled in Parliament on Friday, found 19 cases in eight States, including Tamil Nadu and West Bengal, where such expenditure was allowed. It had a tax impact of Rs.5.56 crore.

The report also flagged nine cases in Maharashtra where advertisement and business promotion expenses of Rs.52.21 crore were allowed by the I-T Department although it has been deemed “unethical by both the Indian Medical Council and the Homoeopathic Practitioners Regulations”.

The CAG has urged the Central Board of Direct Taxes to include the provision for disallowing expenditure for all kinds of freebies and referral fees paid to medical practitioners and advertisement and business promotion expenses as it will create an additional deterrence against such unethical practices.

Meanwhile, the report also noted that despite the estimated growth of private healthcare services in the country, the number of tax filers did not keep pace.

In 2011-12, as many as 4,078 medical professionals, nursing homes and speciality hospitals in the private sector were part of the taxpayer base. This decreased to 4,007 in 2012-13 before rising to 4,329 in 2013-14.

The audit noticed that despite having versatile tools for analysing data collected from external sources, tax officials had not utilised them effectively to strengthen the tax base in the private healthcare sector and to identify the stop-filers and non-filers. The audit found that the tax officials did not carry out any surveys on this sector in some States between 2012-13 and 2015-16.

The CAG also found that the Income-Tax Act does not prescribe any measurable parameters to assess the extent of charitable activities being undertaken by hospital trusts.

[The Hindu Business Line]