Industry experts seek zero-rating of GST on healthcare services and not just exemption to reduce healthcare costs

Since GST is not payable on health care services, health care service providers are not eligible to avail credit on the input taxes paid by it, which ultimately becomes a cost for the service provider.

zero-rating, GST, healthcare services, input credit, rationalization, exempt

Industry experts have sought zero-rating of goods and services tax (GST) on healthcare services and not just exemption from GST to reduce healthcare costs.

At present, hospital services in India are exempt from GST. So there is no GST being charged to patients. Unlike in some countries like the UAE, where hospital services are charged at zero rates, in India, the services are categorized under the exempt category. 

“The issue with the exempt categorization is that there can be no input credit availed on the purchases made by hospitals for the goods and services on which GST is paid in the range of 5 to 18 percent, which in turn increases the input cost,” experts informed.

“To reduce the cost of healthcare, the Government should consider categorizing healthcare services under zero rate instead of the present “exempt” category. This would enable the hospitals to take the benefit of input credit for the GST paid, which benefit can then be passed on to the patients in the form of lower pricing,” said Dr. Azad Moopen, Founder Chairman and Managing Director, Aster DM Healthcare.

Since GST is not payable on health care services, health care service providers are not eligible to avail credit on the input taxes paid by it, which ultimately becomes a cost for the service provider.

“The Government should consider zero rating of healthcare services for a period of 24 months during this pandemic period, which will not only ensure that the input tax credit chain is intact but also ensure that the input taxes are not loaded into the cost of healthcare services. Currently, GST paid on inputs, input services and capital goods used for healthcare services are not eligible for input tax credit since the output service is exempt. Zero-rating would not break the chain of duty / tax flows in the structure. This will also ensure immediate relief to the healthcare sector to navigate the current pandemic,” according to an industry source.   

Experts have also suggested that in the event that the Government believes that zero-rating benefit is not sustainable, it has been urged that the Government may consider the option to treat the health care services as taxable supply of services at a lower rate of 5% after the period of 24 months. This would go a long way in keeping healthcare services costs affordable, without breaking the input tax credit chain. 

Dr. Anant Pandhare, Medical Director, Dr. Hedgewar Hospital informed, “Applicable GST rates in hospitals for healthcare commodities like contraceptives and blood is 0%, for medicines and other vaccines is 5%, other vital medical commodities like Surgical Items is 12%, for Wheel Chair is 18% and Wing Scale is 28% respectively.”

“High healthcare costs will reduce access to health care, and deplete retirement savings, thus affecting patients. Therefore, rationalisation of the GST rate structure in the healthcare sectors is one of the simplest yet significant steps towards opening the possibility for reducing healthcare costs. However, this requires a comprehensive study to find out embedded taxes segment-wise including hospitals, clinics, nursing homes, etc. Post this, the measures to allow free flow of input tax credits can be explored by applying the most rational GST rate structure,” Dr Pandhare added.

“The rising healthcare costs will keep life-saving medicines and machines away from the majority of the people. In India, people avoid needed medical care due to concerns about costs and this is the most challenging issue in the health sector. If the costs continue to rise, we will witness a significant reduction in employment-based insurance and increased financial risk. It will generate substantial economic pressures in the labour market as well. To sum this up, people will have less to spend on other goods and services,” Dr Pandhare concluded.

Talking about the rationalization of GST for the healthcare sector, Dr. Devesh Kumar Singh, Chairman, Noida International Institute of Medical Sciences said “The health-care industry has been hit by the GST tax rates and various other rules and regulations. Currently, GST ranges from 18% to 28% based on treatment slabs of Rs 7,500 and above. Healthcare and holistic wellness have become more important amid the pandemic, so GST rationalization in healthcare sector is very much needed especially in the private sector as the burden of taxes on inputs will be relieved.”  

Dr Singh further added, “GST rationalization will make the healthcare products such as medicines and supplements critical care and life saving equipment and drugs affordable and accessible for all. Health service providers would be able to avail loans at lower rates and be able to invest more on infrastructural developments and bridge the resource gap, adopt IoT & Digital technologies, invest in R&D and upskill the workforce. The cost of treatment is up due to higher tax rates, as GST has increased the cost of various medical equipment. All the imported medicines became getting expensive after the new GST norms. If this is done, the overall cost of healthcare services will actually come down benefitting larger section of the people.”

Echoing similar views, Dr. Shuchin Bajaj, Founder Director, Ujala Cygnus Group of Hospitals added “Hospitals and healthcare providers are being charged GST for almost everything that we buy including consumables equipment, medicines and also on the rent that we pay to the landlords for running our hospitals. But unfortunately, we don’t get any input credit on the GST as we don’t charge any GST on the medical services we give to our patients that hits the bottom lines of the hospitals a lot. So, it is a request to the government that if at least there would be a GST waiver on rentals for the hospital buildings that would be a great help. If not, then we should be allowed to claim input credit for the GST that we pay for consumables medicines and rentals which can be as high as 18% for the rentals and other equipment.”

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