by Dr Sanjiv Kumar
& Dr Sumesh Kumar
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.What is Goods and Services Tax (GST) ?
GST 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, GST 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 GST 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.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.
GST 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 GST. 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. Dr Sanjiv Kumar is the Director and Dr Sumesh Kumar is an Associate Professor at International Institute of Health Management Research, New Delhi