The Healthcare Industry in India has become one of the largest sectors in the country in regards to employment and revenue. As Healthcare expenditure increases, so do the tax revenues for India. As the population continues to grow, the need for better Healthcare Services is also growing. Currently, 5 percent of the country’s GDP is expended on the Healthcare sector.
The country’s healthcare industry has been growing exponentially in last few years, and the Health Ministry targets for the development of new technologies to end the year for treating diseases, such as tuberculosis and cancer.
Recently, the passing of the most awaited Goods and Services Tax (GST) Bill caught the attention throughout all industries in India. It should benefit most sectors and make taxation easier as it replaces several different duties and taxes.
Effects of GST on the Healthcare Industry:
The passing of the GST (Goods and Services Tax) Bill has grabbed the attention across all the industries in the country. It would benefit most of the sectors and make the taxation process easier as it will replace a number of different taxes and duties.
The Indian Healthcare Industry is now among of the major sectors with respect to revenue and to employment. As the expenditure on the Healthcare increases, so do revenues from taxes. Recently, the Government of India decided for the implementation of GST, which would subsume various taxes of the complex tax system in the country into one uniform tax system.
GST is expected to have a positive effect on the Pharmaceutical sector. It will help the industry by simplifying the tax structure, since eight different taxes are levied in the Pharmaceutical Industry at the moment. A consolidation of all these into one tax would ease doing business, as well as mitigate the cascading effects of multiple taxes applied on one product. Moreover, GST would also improve the operational efficiency by rationalising the supply chain that could alone add 2 percent to the country’s Pharmaceutical industry.
GST would help the Pharmaceutical companies in rationalising their supply chain; the companies would need to review their strategy and distribution networks. Furthermore, GST implementation would also enable a flow of seamless tax credit, improvement the overall compliance create an equal level playing field for the Pharmaceutical companies in the country. The biggest advantage for the companies would be the reduction in the overall transaction costs with the withdrawal of CST (Central Sales Tax). GST is also expected to lower the manufacturing cost.
Apart from this, GST will also result in operational efficiency by streamlining the supply chain which can alone add 2% to India’s Pharmaceutical market size. Because GST will help Pharmaceutical companies rationalize their supply chain, they will have to review their distribution networks and strategy. Additionally, GST implementation will also envisage a seamless flow of tax credit, account for improvement in overall compliance and is also expected to create a level-playing field for Pharmaceutical companies in India.
A big advantage for companies will be the reduction in transaction costs with the discontinuance of Central Sales Tax (CST). GST is expected to bring down the manufacturing cost and even a 2% reduction in production or distribution cost is believed to add over 20% to profits. GST, if its rate is below the current total tax rate, will eventually help consumers by making Healthcare and drugs more affordable which already is a big goal for the Indian Government.
One more benefit likely to accrue due to GST is the reduction in the overall cost of technology. Currently, the technical machinery and equipment which are imported into the country by the healthcare sector are very costly. Also, the duty which is levied is not allowed as a tax credit under the present tax regulations. However, with GST this scenario might change. Under GST, duty charged on the import of such equipment and machinery would be allowed as a credit.