Several changes have occurred to the Indian tax system. However, what is deemed as the largest reform happened on 1st July 2017 with the implementation of the Goods and Services Tax (GST). This tax reform is expected to bring uniformity to the Indian tax system.
Local, state, and central authorities levied multiple taxes such as service tax, octroi, excise duty, and others prior to GST. The new tax aims to replace all these multiple taxes and levy a single rate paid by the customer in the last stage of the cycle.
GST and healthcare industry
Healthcare is one of the quickest growing industries in the country. Post GST,the industry is hopeful to increase employment and revenue. This industry includes multiple sectors such as medical devices, pharmacy, medical insurance, diagnostics, and many more. Here is how each of these sub-sectors has beenaffected under GST.
- Medical devices
With the multiple taxes levied in the pre-GST era, manufacturers paid over 13% as taxes. The burden is expected to reduce because the applicable GST rate for medical devices and equipment manufacturers is now 12%. This development has not onlyboosted the segment but also benefited customers through lower prices; thereby, making devices more affordable as compared to the pre-GST era.
Roughly two-thirds of the total healthcare expenses in the country are attributed to drugs. The taxes on all types of medications and drugs before GST tax were 13%. The burden has now decreased as 12% GST is levied. Besides, a 5% rate is applicable for drugs used to treat diabetes, tuberculosis, malaria, and HIV-AIDS. Therefore, post GST, the prices of drugs have decreased, thereby benefiting the consumers. Furthermore, pharmaceutical companies have benefited as their purchase costs have reduced after the implementation of GST. The pre-GST multiple tax regime slowed business operations due to complexities. A single tax eliminates the cumbersomeness and makes it easier for companies to operate.
- Health insurance
In 2016, health insurance penetration in rural and urban areas was 14% and 18%, respectively. With time, the penetration is expected to increase in a developing country like India. A service tax of 15% was levied on the insurance premium before GST. This has now increased to 18%, which will however increase the healthcare insurance premium.
In the new tax regime, the expenses towards diagnostic tests are under the bracket of 12% to 18% GST. Prior to GST, 10% to 15% taxes were paid on diagnostic tests.
GST has brought transparency to the entire tax system and has increased the government’s revenue. It is expected to simplify the Indian tax structure and boost the economic growth. Healthcare industry experts foresee strategic changes with a positive environment under the new tax regime.