In this article, a small effort has been put-in to place GST Impact on Health Care Services, its practical issues and challenges in during implementation and also post implementation.
GST Impact on Health Care Services
The Indian Healthcare Industry is now among of the major sectors with respect of revenue and employmentThe Indian Pharmaceutical industry is currently the largest producer of generics in the world and the 3rd largest when talking about volumeIt accounts for almost 5% of the country’s GDPSeeing this exponential growth, the impact of GST on the sector is going to be quite significantWith the implementation of the goods and services tax (GST) across the country, the expectation was that healthcare services would overall become affordable for the masses
Rates of GST on Healthcare Services and Exemptions thereon
Meaning of “Health Care Services”
As per notification 12/2017 dated 28-06-2017, “Healthcare services” means:
any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognized system of medicinesit also includes services by way of transportation of the patient to and from a clinical establishmentbut does not include hair transplant or cosmetic or plastic surgery, except when undertaken to restore or to reconstruct anatomy or functions of body affected due to congenital defects, developmental abnormalities, injury or trauma;“Clinical Establishment” typically means a hospital, nursing home, clinic, sanatorium, etc.
Dispensing of Medicines
Healthcare services are exempt from GST under the GST Act, 2016. Healthcare products are not exempted, however. Healthcare products are chargeable.Healthcare products include medicines, instruments, machines, equipments, infrastructure, etc.When a Doctor dispenses medicines, they form part of healthcare services as a whole and are therefore not chargeable to GSTWhen a Doctor charges a fees for services rendered that includes fees+medicines as a whole, it is a service (composite supply) and called dispensing (as per IMC Rules). It is not called as selling medicines.However, if a Doctor charges for medicines/other healthcare products solely, these are chargeable for GST
Impact Analysis
The expectation was that healthcare services would overall become affordable for the massesThe healthcare sector has been granted full exemption from GST. So, there are no taxes and hence, theoretically, it should be affordableHowever, this is not true for the healthcare sectorThe reason is that because complete exemption has been granted to healthcare services, it thereby means that the input tax credits cannot be availed.Also when Output supply is not taxable then refund of taxes paid on inward supply of goods and services is not allowedDue to this all the taxes levied on Input services or goods taken by health care services providers like Hospitals, clinical establishment and paramedics shall become part of cost.Consequently, this leads to a lot of input tax cost, which has become a burden on healthcare servicesWhile the healthcare sector can breathe easy as it attracts almost five percent of India’s total GDP, the pharmaceutical sector may face some challengesmedicine rates in the GST regime will be slightly higher than what prevail currentlyUntil now, life-saving drugs to treat diseases like malaria, HIV-AIDS, tuberculosis, and diabetes, had been exempted from excise and customs duties, and only a few states charged 5% tax on thembut GST has now slotted them mandatorily under the 5% slab, while categorizing formulations into the 12% slab (up from nine percent) and Active Pharmaceutical Ingredients (APIs) under 18%.In most of the states VAT on pharma products is charged on the maximum retail price (MRP), and is charged at a single pointDue to this, the distribution channel does not pay VAT; neither does it file tax returnsThey will now need to perform this daunting task of getting registered and filing minimum of 37 returns annually as required under GST.
CONCLUSION
The GST regime promotes seamless flow of credit across goods and services, and removes cascading effect of taxes.Considering the exemption on healthcare services (output side), GST paid on procurement (for example, medicines, consumables, etc) by such clinical establishments will be a huge sticking cost, making healthcare services expensive.Since the ultimate burden of GST is passed on to the end-consumers—patients in this case—it is prudent that the GST input tax cost on the healthcare sector be removed..Therefore, there is an urgent need to grant benefits under GST due to the key reason that affordable medical care and healthcare should be accessible to every individual in India as a matter of right.Further, increase in tax cost for the healthcare sector would mean a basic necessity like healthcare becoming expensive for the common man
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