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Impact of GST on Indian Healthcare and Pharma Sector

August 8, 2017 admin Comments 0 Comment

Impact-of-GST-on-Indian-Healthcare-sector

In India many types of tax systems were prevailing in the past, and during British period, there were significant changes in the taxation system. There after many changes took place time to time. To make the Indian Tax system more uniform, Goods and Services Tax has been introduced in India from 1st July 2017.

Goods and Services Tax is hailed as the biggest tax reform since independence. Parties on both sides of the political divide say it is a good initiative but may disagree on preparedness to implement and the rates on various goods. It will include all taxes at various stages of value addition in production process of goods and services i.e. buying raw material, manufacturing of components and final product, warehousing, and transportation and final sale to customer. These taxes were levied by multiple authorities such as local (municipalities), state and central governments. The final customer will pay GST while purchasing from the last dealer. Thus it is not a new tax but replaces all taxes which were levied at all the previous stages in production and sale process with one tax.

Now there is one tax with two components i.e. state components and central. The state component will go to the state in which final transaction took place and central component will go to central government. GST is expected to increase the government revenue as tax evasion will be checked and many services that were not under the service tax regime will come under GST. The increase in Government revenue will improve investment in health and the social determinants of health. It will also provide transparency and certainty in the Indian tax system. It will improve the ease of doing business in India for both local and off-shore investors.India’s current standing globally in ease of doing business is 130 out of 190 countries. Globally, Goods and Services Tax is seen as a simple, efficient and successful form of indirect tax reform. It will contribute to accelerate economic growth in India by replacing the current multiple (more than 15), inefficient, irrational and complex indirect tax system in India.

GST in other countries:

Most of the countries (160) in the world especially the ones with advanced economy have Goods and Services Tax or similar tax system, some have been in place for more than fifty years. These include France (first country to implement in 1954), China (1994 modified in 2016), Japan (1989), Malaysia (2015), Australia (2000), New Zealand (1986), Singapore (1994), and Canada (1991). Globally there are more than 40 models of GST. India’s GST system is closer to that of Canada with two components (state and the center).

Even smaller economies like Seychelles, Gambia and Congo have introduced GST in last five year. The countries introducing Goods and Services Tax have faced short term disruptions such as protests, inflation spikes, burden on small businesses etc. before the benefits start emerging. India has four slabs of taxes (5, 12. 18, 28 and on some goods sin tax of 40%) where almost all other countries have only one slab.There is no doubt that GST is going to affect almost every sector of the economy in India, so the experts are trying to analyse their respective sectors and their growth under the umbrella of GST.

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GST and healthcare sector

Health care is one of the fastest growing sectors of the Indian economy with lots of potential in terms of revenue and employment. Health care is a wider term that mainly includes pharmacy, medical devices, medical insurance, diagnostics and other components of medical care. The GST is going to affect all the components of health care in various ways.

1) GST and Pharmaceutical industry

About two thirds of the out of pocket expenditure on healthcare is on drugs in India.The burden of all the taxes on drugs in general was about 13 percent in the pre GST period and the current GST is 12 percent as a whole including ayurvedic drugs. The medicines for HIV-AIDS, malaria, tuberculosis and diabetes will be imposed 5 percent GST. The GST on the drugs produced under excise free manufacturing zone is yet to be clarified.The best thing for the pharma companies is that their cost of purchase is going to reduce. Moreover the burden of multiple tax and complexities associated with multiple tax system slowed down the business. GST will give hassle free business environment to the pharma companies. For the consumer the cost of drugs will come down.

2) GST and Medical devices and Equipment

The manufacturers of medical devices are also joining the party as medical devices and surgical equipments are proposed to be taxed 12 percent under the GST. The previous burden of taxes on the medical devices and equipment was over 13 percent including all the bunch of taxes. So one percent tax benefit is clearly visible under the new tax system for the medical device and equipment industry. This will clearly give a boost to the industry in the near future. The consumer will also share the benefits in terms of lower price and affordability.

3) GST and Health Insurance

There is lot of scope of for health insurance in the country like India where the coverage under health insurance is only 18 percentage in urban and 14 percent in rural India in 2016. The GST rate on the insurance sector is 18 percent as against 15 percent service tax in the pre GST era. It clearly indicates that the health insurance premiums are going to increase.

4) GST and diagnostics

There is expected rise in the prices of diagnostics such as blood tests, X-rays, MRI and strip based diagnostics as they are put under either 12 or 18 percent slab which is higher than the previous tax rate on these services. In the pre GST era the 10-15 percent of out of pocket expenditure is on diagnostics which is expected to increase in the post GST period.

Goods and Services Tax will certainly increase the Government revenue in the country with more transparency in the tax system that will further simplify the tax structure. The economy is expected to grow at a faster rate. Every sector of the economy would have its share in the growth of the economy including healthcare sector. In a broad spectrum, it is an analysing phase for the healthcare sector to see the impact of Goods and Services Tax. The experts of the healthcare sector are confident that the post GST period will bring the strategic change and will create a positive environment by minimizing the obstacles and complexities in the growth of healthcare sector and have a positive impact to bring down the cost of health.

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Source : ETHealthWorld

Education, healthcare to be out of GST

April 3, 2017 admin Comments 0 Comment

Education, healthcare and pilgrimages will continue to be out of service tax net even under the GST regime as the Centre is against giving any shock in the first year of the rollout by bringing in new services.

Hasmukh Adhia

Besides making a strong case to the GST Council for not touching services that are out of tax net currently, the Centre will also pitch for keeping concessional rate for services like transport at the current level, Revenue Secretary Hasmukh Adhia told PTI in an interview.

The GST Council, headed by Union Finance Minister Arun Jaitley and comprising representatives of all states, is scheduled to meet in Srinagar on May 18-19 to decide on rates various good and services will be charged in the new indirect tax regime that is being targeted for rollout from July 1.

Adhia said the endeavour would be to maintain the current tax incidence on a commodity or service at the same level in the new Goods and Services Tax (GST) regime.

GST will subsume central levies like excise duty on manufactured products and service tax on rendering of services as well as state VAT on sale, to make for a national sales tax that will be levied at the time of consumption of a product or service.

Adhia said the approach for the GST rollout would be to avoid any shock in the first year and any review for inclusion of a service or change in rate could be done in the second or third year of the implementation based on revenue realisation.

“Our entire purpose will be that we don’t upset anything that is there now. We will try to do some smooth landing. So we will recommend to GST Council that whatever is the existing exemption list for service tax they should continue because we cannot do too many things at the same time,” he said.

Currently, there are 17 items in negative list of services on which service tax is not levied.

On top of that there are over 60 services, like religious pilgrimage, healthcare, education, skill development, journalistic activities which are exempt from service tax.

Rajat Mohan, Director at tax consultant Nangia & Co, said: “GST is the biggest change that our country would see in last 50 years. I see that it was imperative that the government should continue exemptions on the current list of services which are tax neutral under the service tax regime.”

“I am ecstatic that there would be no levy of GST on services rendered by Government, Reserve Bank of India, public conveniences, educational institution, services relating to agriculture, transmission or distribution of electricity, renting of residential dwelling for use as a residence, burial, healthcare, specified schemes of general insurance etc,” Mohan said.

Mohan, however, felt that this might lead to cascading effect of taxes, but by maintaining the status quo government has ensured that neither the consumer nor the small and medium-sized companies are not in a state of shock.

Asked if these services would be kept exempt from GST, Adhia said: “We presume so… We will recommend to the GST Council that whatever is in the exemption list they should continue in the first year.”

He said the main service tax rate will be standard rate of 18 per cent.

“But there may be items of services where abatement (concessional rate) is given for valid reasons. So those items, because there will be no provision for abatements (in GST), we will have to fit them in the rates closed to the present incidence,” he said.

The GST Council has approved a four-rate tax structure of 5, 12, 18 and 28 per cent.

Adhia said transport sector, for example, currently gets abatement of 60 per cent and only 40 per cent of the present service tax rate of 15 per cent is being collected.

And so, the tax in the GST will be fixed in the closes bracket of 5 per cent, he said.

Asked if rates for certain services will go up because current tax rate is 15 per cent and the nearest bracket that would not upset the revenue collections is 18 per cent, he said, “some services may become a little more expensive.”

The exact ones that become expensive or cheaper will be decided by the GST Council, he said.

On the issue of crude oil, petrol, diesel, aviation turbine fuel (ATF) and natural gas being kept out of GST net for the time being by continuing with existing taxes of excise and VAT, Adhia said the GST Council decided that to give states comfort of revenue collections.

“For them it is some kind of a risk insurer. That 30 per cent income is already assured. Now 70 per cent (of products and services) they are putting it into the common kitty,” he said.

States, he said, want to wait and see how much revenue is generated in the GST regime.