India’s healthcare sector has been a focus area during the Narendra Modi government’s first three years. There have been several well-intended policies. For example, the National Health Policy 2017, which has set several goals, including the progressive roll-out of the universal health coverage (UHC) that will bring in a significantly large population under the public healthcare system.
Further, finance minister Arun Jaitley’s third Union Budget earlier this year proposed making drugs more affordable by making amendments to the Drugs and Cosmetics Act, and bringing wellness and preventive care to the forefront. The Union Budget also recommended making certain structural changes in medical education. Keeping healthcare costs under control is important. Towards that, the government did take a strong decision to drastically slash prices of medical devices.
Now, with 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. But has that happened? Well, the healthcare sector has been granted full exemption from GST. So, there are no taxes and hence, theoretically, it should be affordable. But what exactly is the impact of GST on the healthcare sector?
At the outset, “healthcare services” means any service by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy in any recognised system of medicines; it also includes services by way of transportation of the patient to and from a clinical establishment. And “clinical establishment” typically means a hospital, nursing home, clinic, sanatorium, etc.
Under the new indirect tax regime, many sectors have benefited from the increased credit due to minimal blockage of credit and enhanced fungibility of credit between goods and services.
However, this is not true for the healthcare sector. The reason is that because complete exemption has been granted to healthcare services, it thereby means that the input tax credits cannot be availed. Consequently, this leads to a lot of input tax cost, which has become a burden on healthcare services.
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. Increasing the tax burden would be hugely detrimental to the health of the masses.
In fact, the current stage of development of the healthcare industry in India cannot afford the burden of extra tax cost. 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. The government should re-look at this area to ensure that the ultimate objective of providing affordable healthcare services to the vast population of India is achieved.