- Date : 21/07/2017
- Read: 5 mins
With the new tax regime ready to roll out, the cost of healthcare products and services are set to change. Here’s how.
After a lot of deliberation and discussion, the Goods and Services Tax (GST) has finally been rolled out for various products and services in the country. While you are probably aware of some of these changes, did you know that it could affect the cost of health care too?
Here are the different medical sectors that will see a price change once GST is introduced.
GST would have a constructive effect on this sector, considering it will now involve a merger of all these taxes into one uniform tax. This will not only smoothen out the way business is carried out, but also minimise the effects of multiple taxes applied to a single product.
• Since 8 different types of taxes are imposed on the Pharmaceutical Industry today, it will help the sector by streamlining the taxation structure.
• The switchover from the existing tax regime to GST will likely affect medicine prices. The cost of most essential drugs is expected to increase by a 2.29%
• The government has fixed GST rate of 12% on most of the essential drugs as against the current tax incidence of around 9%
• However, some select medicines, such as insulin, will see a lower rate with the government revising GST rate to 5% from 12%
Moreover, GST could also enhance the operational efficiency by rationalising the supply chain, which may contribute 2% to the country’s Pharmaceutical industry.
Indian pharmaceutical sector in numbers
• 3rd largest in the world in terms of volume
• Ranks 14th in the world in terms of value
• 5% of India’s GDP comes from the Healthcare sector
• Healthcare sector is expected to reach $150 billion by end of 2017
The roll out of the GST is also expected to bring about a decrease in the overall cost of medical technology. Currently, the cost for this machinery is rather high, considering most medical equipment is imported. Additionally, under the present tax regulations, the duty levied on it is not permitted as tax credit. However, this may change once GST is implemented, as duty charged on such machinery and equipment may be allowed as credit.
Other health care products
Medicines other than baby food, life-saving drugs and contraceptives may also witness a change in pricing due to varying tax rates. Under the proposed GST tax schedule-
• Baby food like glucose biscuits will be taxed at 18% and malted milk powder at 28%
• There will be a 5% tax on Life saving drugs
• Other drugs will attract a 12% tax
• Food supplements will be taxed at 18%
Drugs other than life-saving could see higher prices in the future because under the present tax structure, these fall into the 5% tax bracket.
However, the final impact of GST on the pharmaceutical industry is still not very clear. Industry experts are hopeful of a win-win situation for both, consumers and pharmaceutical companies. More importantly, reduced complexities and an overall reduction in costs could lead to profitability and promising development.
Health care treatments and diagnostics
Patients could end up paying higher medical bills and bear expensive hospitalisation costs as GST applicable on expenses incurred by hospitals has increased. The cost of surgeries is also expected to rise, considering disposables, drugs and reagents are now bracketed under 12% GST, as compared to the old tax rate which ranged between 2 to 5.5%. Additionally, services like Magnetic Resonance Imaging (MRI)/ X-Rays and contrasts, may also increase in costs, albeit marginally.
Gym and other fitness programs
In the case of the fitness and wellness industry, sporting goods now fall under the 12% tax rate, while physical exercise equipment now attracts a 28% tax under GST. However, an appeal has been made to treat physical exercise equipment as sports goods, and bring it under the 12% GST rate. The implementation of an 18% GST rate would lead to higher prices for customers. It could bring down the demand for gyms and fitness centres, as these services could cost more.
The hike of 3% post-GST, from the current 15%, will see an increased cost of insurance premiums in the health insurance sector. Both, existing and new policyholder will be adversely affected by these increased rates.
For instance, if you are spending a total of Rs. 40,000 a year on insurance, excluding service tax, your current premium would be charged at 15%, which is Rs. 6,000. Under the new tax regime, this same premium will be taxed at 18%, which is Rs. 7,200. This means you pay an additional amount of Rs 1,200 from your pocket.
The GST bill is looked at as a progressive measure that will facilitate seamless movement of goods across inter-state borders, improving efficiency and driving growth of the e-commerce sector. But consider this is just the beginning of the change, it is yet to be seen how this will impact consumers and sellers in the long run.