Goods and Services Tax (GST)- the indirect tax reform India has been waiting for was rolled out on July 1, 2017. India finally fired its tax bazooka uniting the nation under one tax regime. Under GST four-tier tax slabs exist, wherein goods and services will fall in the tax brackets of 5%, 12%, 18% or 28%.
Healthcare services are exempted from this tax regime but consumables, devices and medicines attract 12-18% tax. The biggest worry for this industry right now is that the cost of inputs is much higher than output. And due to the inverted tax structure the hospitals will have to pay tax on procurement but will not have the means to file for input credits. Thus input cost of healthcare delivery will increase and hence may contribute to increase cost to customers.
Here is what the industry leaders say about the new tax regime:
Clarity Amidst Gray Cloud
Rohit M A,Cofounder, Managing Director,Cloudnine Healthcare Facility, Bengaluru
With regard to the overall impact on healthcare and healthcare services, there are still some scattered grey clouds of uncertainty but a lot of clarity otherwise. With regard to cost of medicine, depending on the use of medicine between generic to life saving to the source of production, there were about 6 to 8 taxes which have all been done away with and there seems to be an overall saving of about 3% to 4% overall on cost of medicines which is good. Likewise, cost of medical equipment is also likely to be reduced by a similar 3%. In the case of both the above, it will have to be seen if the producers of medicine and equipment will pass on the benefit to the purchasers.
The bigger grey cloud / area is the impact on rising input costs of provision of healthcare services. Since healthcare services were in the exempt category of service tax and continues to be in the exempt category of GST ( ie 0% GST ), it largely means that all the inputs costs cannot be offset and will have to be absorbed to an extent.
There has been a 3% increase as compared to service tax on many major costs such as leased assets, utilities, manpower costs, benefits to employees ( like hostel, housing services ) telephone, internet and all consulting services. Most of us will need a couple of months to full estimate the impact of such and the endeavor would be that it does not affect the cost of care to the customer.
Overall the GST is a good move and brings in a lot of clarity to previously unclear cessation and levies, archaic inclusions such as Luxury Tax ( in Karnataka ) applicable to healthcare service providers as well. The timing of the regulation is also good that it has come during a low inflationary period ( would have otherwise had an impact on all pricing for acceptance ) and has clearly brought a lot more aspects big and small in to the ambit of taxation which is a good prospect from a developing country and further strengthens the transparency momentum that the Modi Government has been driving forward. Thus far, the government has also been very proactive and reactive of revision of rates and measurement of quick impact which are again good signs. All said however, we have to wait and watch for a little bit longer to measure the overall impact.
Stepping out from Old Indirect Taxation to New
Anjan Bose, Secretary General, NATHEALTH
Apex Healthcare Industry body-NATHEALTH feels that the new taxation regime should set a positive roadmap for the health of the nation. For the advancement of the healthcare sector, NATHEALTH had submitted recommendations for exemptions and rational rates on goods and services related to medical & health sector.
We welcome GST council’s decision to exempt healthcare services from new indirect taxation to be implemented from 1st of July, 2017. The decision will provide much needed support for progress of the healthcare sector.
While welcoming the exemption, NATHEALTH recommends for rational rates on goods (devices, equipment, diagnostic) related to medical and health sector. According to NATHEALTH, rational rates would certainly push ‘Make in India’ campaign and set a positive roadmap for the health of the country
We are very optimistic that along with exemption, the GST Council would consider our recommendations regarding lower GST rates. This decision along with the directions set by the Government in the recently announced National Health Policy should set a positive roadmap for the sector. This should also send a positive signal to the investors for infusing much – needed funds into healthcare and accelerate innovation for improving access to affordable Healthcare.
Rise in healthcare cost in future
Ameera Shah, MD, Promoter, Metropolis Healthcare, Mumbai
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 recognised 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%, 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 per cent 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.
Some relief to patients
Sameer Agarwal,CFO,Manipal Health Enterprises Pvt Ltd (MHEPL) Bengaluru
Healthcare sector has long been outside the Indirect tax ambit for various social and political reasons and continues to be exempt under GST as well. While this may appear to be a patient-friendly move, the GST applicable on expenses incurred by hospitals continue to be a cost, which means patient bills may not come down under GST. In fact hospitals would have increased costs as taxes on services and prices of medicines are expected to increase broadly by 3%. Luxury tax on room charges have been subsumed into GST and could bring some relief to patients.
Mixed Effect
CA Alka Saxena,Financial Controller,HealthCare at HOME, New Delhi
Healthcare services will continue to exempt under GST regime also, however cost to the healthcare service provider would get impacted with an increase wherever tax rates fall under category of 18% or higher rate. On the other side healthcare sector will be benefitted 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.
Zero input credit worrisome
Jagannath MS,CFO – Columbia Asia Hospitals, Bengaluru
The GST legislation is a giant stride in bringing transformation and transparency to business in India and is a laudable effort of the Government. The Government has exempted Healthcare services from levy of GST and therefore there will be no taxes paid by patients for services rendered by hospitals. The rates of GST on several inputs used in hospitals are increasing from July 1, 2017. Besides certain capital equipment and accessories, the key increase in tariffs have been on services like maintenance of equipment i.e. AMC and labor contracts.
The other key impact on costs is where a hospital operates on a Head quarter- branch model where costs relating to centralised functions are expended in the headquarters and the benefit of such service is being availed by branches in other States. Such costs would be liable to GST.
By principles of GST, an exempt service cannot avail input credits. As healthcare is an exempt service such increase in taxes on inputs would increase the overall cost for the hospitals and thus will increase the overall cost of healthcare. We have represented to the Government through several business forums to either levy GST at a lower rate or to provide a ‘zero’ rate of GST for healthcare services. This will help healthcare providers to offset any input credit or to claim refund of GST and hence will also keep healthcare costs at the existing levels.
