Central government’s GST will increase healthcare expenditure


In an effort to unify indirect tax system central government passed GST bill that replaces all the indirect tax by unified GST (Goods and Services tax) which is same for all the states. The tax rates are divided into different slabs for different goods and services which will be common to all the states. GST has come into effect from July 1, 2017.

Healthcare was outside the ambit of indirect tax regime for a long time and is continued to remain outside even in GST. However the effect of tax may be felt by the patients because of cascading impact of GST on disposables, drugs and reagents.

Hospitals use disposables, drugs and reagents for the maintenance of the place to ensure cleanliness and hygiene. With 12% tax on disposables, drugs and reagents because of GST, which was otherwise around 2 to 5.5%, will result in the additional burden on hospitals. Hospitals will have no choice but to pass the burden on the patients.

Also insurance services now fall under 18% bracket which previously enjoyed 15% indirect service tax. When insurance penetration in the country is still low the increase in service tax will have negative impact on the usage of insurance schemes.

Additional tax burden for patients: Healthcare is a basic need for survival and patients have no choice but to spend. With increase in inputs cost for hospitals by about 6.5% – 10% the additional burden will be reflected in the bills for patients.

Reduced disposable income: Cost of healthcare itself reduces the disposable income of people and additional burden of passed on tax will have add on dent to their disposable income. This will have effect on their spending on basic food items, travel and other necessities.

Increase in debt and vicious cycle of poverty: Additional burden will force people to avail more credit facilities that will only accelerate the force of vicious cycle of poverty.

Will reduce insurance penetration: With increased insurance cost due to increase in GST for insurance along with increased input cost burden will narrow down the health benefit a patient enjoys for every rupee spent on insurance premium. This will result in people moving away from insurance policies that in turn increases health expenditure burden on people.

With these issues in mind there has to be pressure on the government to reduce GST on insurance and provide input subsidies for hospitals on maintenance products.


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