What GST Has In Store For The Healthcare Segment
The Indian business arena is abuzz with talk of the newly implemented bill on the Goods & Services Tax; one that is set to lead the country into a diametrically different tax regime and subsume various taxes of the system into a uniform one. While this new GST system is set to kick off from July this year, we see that the healthcare industry has been put on the exemptions list. However, it remains to be seen what this means for Healthcare companies and health services providers, and what lies ahead for the industry as a whole.
As mentioned above, the GST will bring about a new tax regime in India. Until now, a product or service in India is taxed multiple times at different rates as components are added and shipped between states. The new levy will apply at the final point of consumption, reducing the cascading effect of taxes on tax, allowing producers to easily claim credits and minimising the opportunity for corruption. It would benefit most of the sectors and make the taxation process easier as it will replace a number of different taxes and duties.
Challenges & Opportunities for the Healthcare Industry
Under the soon-to-be-implemented GST regime, healthcare will continue to be out of the service tax net, in an effort to avoid giving any shock in the first year of the rollout by bringing in new services.
Under the ambit of GST, healthcare services can refer to any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicines in India. It also includes services by way of transportation of the patient to and from a clinical establishment. The cost of healthcare packages in India including accommodation and travel stand at a mere 30-40 percent of that in first world countries, thus making medical tourism one of India’s burgeoning industries, with revenues in the range of $2 billion this year. The GST exemption will further augment this narrative.
The Ministry of Health plans to focus on the advancement of 50 new innovations before the end of the year for treatment of NCDs such as cancer and TB. Until now, life-saving drugs for 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 them; however, GST has now slotted them compulsorily under the 5% slab, while categorising formulations into the 12 percent slab (up from nine percent) and APIs under 18 percent.
While the cost may not experience any major fluctuations, the challenge for pharma businesses will be to make the transition. Having said that, GST will definitely organize the taxation system in the sector, where until now, up to eight different types of taxes were being imposed at various levels of the supply chain.
The GST Advantage for Healthcare
It is expected that GST would have a constructive effect on the Healthcare Industry particularly, the Pharma sector in the following ways:
- Streamline the taxation structure, since 8 different types of taxes are imposed on the Pharmaceutical Industry today
- Promote ease of business in the country with one uniform tax, by minimising the cascading effects of manifold taxes that are applied to one product
- Improve the operational efficiency by rationalising the supply chain that could alone add 2 percent to the country’s Pharmaceutical industry.
- Enable a flow of seamless tax credit, improve the overall compliance and create an equal level playing field for the Pharmaceutical companies in the country.
- Reduce overall transaction costs with the withdrawal of CST (Central Sales Tax) and also lower the manufacturing costs.
- Reduce overall cost of technology as currently, the technical machinery and equipment which are imported into the country by the healthcare sector are very costly. Also, the duty which is levied is not allowed as a tax credit under the present tax regulations. Under GST, duty charged on the import of such equipment and machinery would be allowed as a credit.
Role of Technology
Technology will play a key role in the implementation of GST in India. An effective way of ensuring end to end GST transformation would be to deploy the right tax technology and infrastructure which will take into account multiple GST requirements catering to varied geographies and businesses. It will give the government a three-step advantage:
Ø Determination of Tax: “Tax-engines” that have a central platform to connect all source systems and has inbuilt logic, rules and content which are kept updated to ensure transactions are taxed appropriately.
Ø Reporting & Analysis: Tax technology will play a vital role in providing audit trail of transactions and required reports which are useful in internal analysis and audits
Ø Transparency: There will be a need of reconciliation for both supplier and recipient to bring about transparency and minimize tax evasion. Tax technology can help companies ensure such compliance.
Moreover, GST will also force SMEs to digitize and make them more transparent. Often accused of conducting business mostly in cash and evading taxes by under-reporting income, these businesses will, for the first time, have to report every transaction, creating an online trail for the tax office. The federal government hopes there will be a jump of at least 14% in revenue growth under the new levy as more taxpayers come into the fold of the formal economy and move on to digital modes of payment. It will bring an unprecedented transparency and create data for almost every monetary transaction in the economy, the government hopes, and this, in turn, will help expand the tax base.
The Bottom Line
The GST legislation is set to benefit the customers by making health care more affordable for all. It is a breakthrough tax reform and one of the biggest major milestones for the country and its industries. The GST bill would boost the local manufacturing sector, enable more accessibility to products which will be affordable for the local consumers. Moreover, with the implementation of GST, Medical Tourism is also projected to grow manifold. With the roll out of GST, the cost of insurance, pharmaceuticals, and international travel together with quality health care is expected to reduce which would culminate into better prospects of medical tourism in the country.
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