The Delhi government's department of trade and taxes was quick to offer an explanation on its half-page advertisement issued on Sunday, warning hospitals and nursing homes to pay value added tax (VAT) to avoid action.
Under the title, 'Catch us before we catch you', the advertisement labeled hospitals and nursing homes as 'dealers' and liable for registration under Delhi VAT Act. This created panic and confusion among hospitals and nursing homes in the city.
Even the Delhi health minister had claimed that he did not have any clarity on the advertisement.
"In the last VAT committee meeting, it was decided that the health and education sector will be exempted from VAT. I don't know about the advertisement, and we certainly don't want to burden the patients," Walia had said.
"Administering drugs, medicines, inserting implants, dental prosthetics, devices, stunts, artificial limbs in patients during diagnostic tests and treatments, including package treatments are sales and taxable, just like the supply of diets and foods to indoor patients," the advertisement read.
The trade and taxes department on Monday explained in detail that it was mistakenly understood that the cost of medical care in hospitals would go up since VAT would now be charged on medical services.
"In fact, there has been no change in VAT laws or rates. What has simply happened is that as part of a regular communications campaign, the department of trades and taxes issues advertisements at this time of the year.This is done to educate tax payers about their liability to pay taxes," the clarification read.
As per law, no VAT is chargeable on services such as doctor consultation, surgical fees or nursing services. However, since its inception in 2005, VAT is chargeable at the rate of 5% on the profit margin on related items earned by hospitals and nursing homes on drugs, medicines and surgical implants.
The tax is not chargeable on total bill, but only on the profit margin on the related items. Hence, it forms a fairly insignificant part of the total bill that the patient has to pay.