India is the largest producer of generics and medicines in the world and holds rank 3rd in terms of volume of medicines and 14th in terms of value. As the population is growing the need for medicines is also growing. As the Indian pharmaceuticals Sector is growing, the government is also targeting to increase investment in technologies that can help cure diseases like Cancer, AIDS, etc government is also encouraging foreign investment in this sector. In the Recent budget in FY 23, the expenditure on the healthcare sector touched 2.1% of GDP as compared to 1.6% in FY 21.
The main intention behind the implementation of GST is to subsume all the taxes under one roof and makes the compliance procedure easier so that businessman can focus on business rather than compliance
Rationalising Supply Chain
In the Health sector, GST has shown several benefits in the form of improvement in operational efficiency by rationalizing the supply chain which could add 2% to the country’s pharmaceutical industry. After the amalgamation of all taxes, the burden of manifold taxes on products got reduced. This would enable the companies to look after their supply chain and distribution networks.
Seamless flow of Credit
GST enables a seamless flow of credits of tax paid earlier to the purchaser and allowed them to set off against his tax liability. Earlier CST (Central Sales Tax) was a part of the overall manufacturing cost. CST was an indirect tax that was levied on interstate supply and on the sale value of goods means including tax value which gives rise to cascading effect plus its credit was also not allowed.
Increase in Investment
In the earlier tax regime, duty on imported machinery was heavy and credit was not allowed but in the GST regime cost has been reduced because of Tax Credit. It will encourage overall investment in the industry.
Inverted Tax Structure
One of the major concerns of the health sector was the inverted tax structure because the machinery used was costly and huge taxes were paid on it but the final product which is medicines has a very low tax rate because of the necessity of life. This imbalance resists domestic and small manufacturers from entering this market. But GST has brought a good initiative by bringing the option of a refund in an inverted duty structure that a business unit can avail of the refund of excess ITC accumulated in a Credit Ledger in a bank account by fulfilling certain conditions.
Impact on Medical Tourism
Medical Tourism is the practice of traveling to different countries for receiving medical Aids. In India, medical tourism is also an emerging and revenue-generating industry because certain studies have proved that the cost of medical tourism in India is 30-40% of other countries. Approximately 2 million patients visit India each year from 78 countries for medical, wellness, and IVF treatments, generating $6 billion for the industry which is expected to reach $13 billion by 2026 backed by the government’s Heal in India initiative. With the introduction of GST the cost of insurance, pharmaceuticals, and international travel together with quality health care reduced which would culminate in better prospects of medical tourism in the country for the future.
Negative Impact
Apart from the helpful impact, there have been certain negative effects of GST on the medical industry like taxation for Ayurvedic Medicines. Earlier it was 7% including VAT but in GST it is kept at 12% because it is considered a cosmetic product. This is not a welcoming move as on one side the government is promoting Ayurved in India and on the other side its taxation is done as a cosmetic product
GST rates on Medicines and allied Services
GST is taxed at 4 rates mainly at Nil, 5%, 12%, and 18%, on medical and medical supplies.
Nil Rate is charged on Blood Banks, its by-products, and Contracceotives.
5% is charged on life-saving drugs like vaccines, and medicines for the cure of tuberculosis, AIDS, diabetes, and malaria among others.
12% is charged on medical equipment, medical grade oxygen, and certain other areas.
18% is charged only on medicines, like nicotine gums, which contain nicotine polacrilex.