July 1, 2017 was a defining day in India’s history of tax reforms. Some changes were made for the medical sector too. Experts share their views on how it will impact the sector.
“We welcome the concept of GST and congratulate the government for finally taking this much-awaited step. The healthcare sector that MTaI members contribute to is a key priority of the government in terms of service quality and reach. India spends just about 1.3 percent of the GDP on healthcare, and 70 percent of the healthcare spending in the country is out-of-pocket. The government has implemented several measures to keep these services affordable to the common man.
With this as the background, the current GST dispensation for healthcare that keeps the hospital services exempt from GST (which also means that the hospitals will not be able to avail input tax credit) and fixes rates that range from 5 percent-28 percent on medical devices will do little to lower the existing medical costs for the common man. In line with our earlier recommendation, it would have helped if the medical services were zero-rated, similar to exports, where full tax credit against inputs would be refundable, and all devices were taxed at a standard rate of 5 percent GST. On the contrary, many medical devices have seen higher GST rates than the embedded tax earlier. The increase ranges from about 1.5 percent (for devices attracting 6 percent CVD earlier) to 4.5 percent (for devices under nil CVD). Besides, the maintenance cost of the Capital Equipment went up by 3 percent, owing to increase in GST to 18 percent vs previous Service Tax rate of 15 percent. There was an across-the-board increase in custom duties board in early 2016 as well. A successive increase in GST will force the suppliers to raise prices of devices. This will only add to the cost of medical services. A lower and uniform GST rate of 5 percent, when combined with the anti-profiteering law would have helped to bring down the cost of medical service to patients, and also attract investments to the sector and expand reach.
GST should support ease-of-doing business, reduce cost of compliance and provide entrepreneurial impetus. We, at MTaI, look forward to an inclusive approach by the government to help make this more relevant for the healthcare sector, and welcome any initiative to work together in addressing initial issues such as those highlighted above”.
Medical Technology Association of India (MTaI)
“The impact of GST on healthcare is hidden. The input cost for healthcare cost of equipment, reagents, and chemicals are all going on a higher slab of taxes as compared to the present, thereby increasing our costs; hence the impact on patient billing will be visible in the near future”.
Anand Diagnostic Laboratory
“Under GST, healthcare services are referred to as any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality, or pregnancy as per recognized systems of medicine in India. They also include services by way of transportation of the patient to and from a clinical establishment. Given this, the healthcare sector had speculated, debated, and discussed about implications of the impending GST Bill. The decision of the Indian government to exempt healthcare services from GST has been good news for start-ups as well as established healthcare businesses. However, for the end-consumer the costs could rise, given the increase in input costs as proposed by GST. As per the GST regime, the tax rate for medical device sector was pegged at 12 percent, which could affect the overall cost structure of the healthcare chain.
Although hospital services are exempted from taxes under GST, the outsourced services, aesthetics, and outpatient pharmacies are subject to GST imposition. In the pharmaceuticals landscape, the 5 percent tax rate on life-saving drugs that treat diseases like malaria, HIV-AIDS, tuberculosis, and diabetes is expected to marginally increase the prices of medicinal drugs, leading to a domino effect in the cost structures for healthcare sector. While this shift is dramatic enough, I am glad that the GST council has decided to make the transition as smooth as possible for India, by not moving the tax needle too drastically on the healthcare related goods and services segments”.
“Healthcare services have been exempted from GST to a large extent. Therefore the status by and large would be as before. However, there is a change in the inputs costs for the service provider in terms of increase of tax on outsourced services like housekeeping, security etc. This would push the costs of treatment upward. We have yet to analyze the impact of change in prices of medicines and consumables. This factor would entirely depend on the manufactures who will be fixing the prices afresh. By the information so far, on this account, the impact on the cost to the patient should be very marginal.”
Wockhardt Hospitals Ltd.
“GST regime will definitely organize the flow of indirect taxes in the chain and bring in transparency along with convenience to deal with compliance matters. Since healthcare services are exempt from GST, service providers have to focus and fine-tune purchase strategies and procedures to optimize costs. On the Goods, we anticipate reduction in purchase costs over a period of time (platform effect). This benefit may get condensed by the increase in tax rates of some goods. On the Services, it’s a clear increase of 3 percent, which providers have to address between tariff (to customers) and margins”
Chief Finance Officer,
Apollo Health and Lifestyle Limited.
“GST is a remarkable step taken by the government and exempting healthcare from it will help the consumer to some extent. Though, due to input tax levied on products and services, it will impact the costs for healthcare providers. The companies working in this domain will try and absorb the cost themselves to a certain point; however, in the long run, the consumers will have to pay for the service cost. However, in my opinion healthcare services should be included in GST at a nominal rate. This will ensure that all transactions in the healthcare sector will be mapped in the system, the government will get additional revenue, and the healthcare organizations will get the benefit of input tax credit. There is a limited input on overall cost of healthcare to the end consumer.”
Joint – MD,
Indus Health Plus.
“By merging a large number of central and state taxes into a single tax, GST is expected to significantly reduce the cascading effect of taxation and make taxation easy for the nation. For the startups ecosystem in particular, GST provides many benefits like simpler taxation, ease of expansion in different states and cities due to uniformity in taxes, efficiency in logistics and interstate movement of goods, and transparent and digital tax processes that will enable startups to manage compliance on their own without the need of involving too many tax experts. As for the diagnostic industry, there is no direct impact but since GST on reagents, machinery, and kits will increase, this additional cost burden will either be passed on to the consumers or will be absorbed by the companies themselves, reducing margins drastically. Moreover, compliance with the new tax regime will be a time taking activity as fresh contracts with vendors will have to be processed”.
CEO and Founder,
“On one hand, healthcare services are exempt. However, the inputs used to provide such healthcare services are now taxed under the 12 percent tax bracket in total contrast to the old tax bracket of 2 percent – 5.5 percent. Subsequently, the cost of surgeries and other medical procedures that involve use of such inputs, will now go up considerably. Secondly, housekeeping services and security services, which are essential to the healthcare sector, are also now taxed at a higher rate of 18 percent. An increase in the rate of these services leads to increase in the day-to-day operating costs of any healthcare establishment. Thirdly, ancillary medical procedures and diagnostics including reagents, which play a key role in treatment, have been put under the 12 percent and 18 percent slab. This means, cost of diagnostic services will go up considerably. Until now, lifesaving drugs that treat diseases like malaria, HIV-AIDS, tuberculosis, and diabetes, had been exempted from excise and customs duties. But GST has now slotted them compulsorily under the five percent slab, while categorizing formulations into the 12 percent slab (up from 9%). Hence, the overall cost of healthcare will increase as tax on inputs of hospitals including equipment, accessories, and services such as maintenance of equipment and labor contracts will rise. But the positive aspect of GST is that there will exist a seamless input tax credit system that shall pose like a boon in spite of all the enhanced costs”.
Associate Manager- Tax and Regulatory,
K Vijayaraghavan & Associates LLP Company
“Healthcare services will continue to be exempt under the GST regime, however cost to the healthcare service provider will get impacted with an increase wherever tax rates fall under the category of 18 percent or higher. On the other hand, the healthcare sector will benefit with GST due to elimination of multiple taxation and simplified process of interstate trading and tax setoffs, particularly in pharmaceutical products. GST will bring a mixed effect to the healthcare industry”.