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5 Ways GST Affects Healthcare Industry

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The Goods and Service Tax (GST) bill has introduced a plethora of benefits for the healthcare industry. It is expected to significantly aid the development of this sector. It has the potential to abolish the complex tax structure and allow businesses to make more profits while benefiting the consumer by providing affordable healthcare.

Let’s look at the impacts of this tax reform.

Impact of GST on healthcare industry

The healthcare sector includes hospital management firms, health maintenance organizations (HMOs), hospitals, biotechnology products and other medical products.

1. Streamline taxation structure

Currently, eight types of taxes are imposed on the pharmaceutical industry. GST aims to abolish this and unify them into a single tax system. Streamlining the taxation structure will simplify the process of doing business and will reduce the burden of multiple taxes that are being levied on a single product. Thus, we can expect the medicines to get cheaper.

2. Improves Operational Efficiency

Medical companies will need to revisit their business model and revise their procurement and distribution strategy. The companies must optimize their supply chain by ensuring they select the right suppliers and keep procurement costs within their budget. If this is planned correctly, it will improve their operational efficiency and increase profits by approximately 2 percent.

3. Reduction in Transaction and Manufacturing Costs

GST will reduce the transaction and manufacturing costs of products in the healthcare industry. Central Sales Tax (CST) has been withdrawn on healthcare products. The healthcare sector requires expensive equipment and the cost to import them is also very high. However, the GST will allow this duty to be treated as a tax credit, which could immensely benefit the industry.

4. Inverted Duty Structure

In the healthcare industry, the cost of raw materials is higher than the cost at which the product is sold. This affects domestic manufacturers, as they are unable to obtain investments. The only way to tackle this is by availing a business loan. There is also an upper limit at which products can be sold to the consumer to ensure that it is affordable for all. However, GST aims to change this by getting rid of the inverted duty structure or through a refund of the credit obtained. This will boost growth in the healthcare industry.

5. Duty on Medicines and Drug Samples

There is some ambiguity regarding the taxation process on life-saving drugs and medical devices. It is currently tax-free, but some states charge a five percent tax on medicines. GST aims to unify this system, but it is yet to be seen whether these will be exempted from taxes or not. Medical products expire and this disposal usually requires inter-state transportation. Inter-state taxes and tolls have been abolished and this will cut down logistics and transportation costs on stock transfers. GST will apply to all stages of the supply chain. Thus, it is still unclear how companies will modify their policies to keep up with this change.

To sum it up

GST could be beneficial to the healthcare industry. The consumers are expected to get cheaper health care. The healthcare industry, as a whole, is expected to profit with this subsuming tax structure. However GST will also impact the style of  businesses in India, hence the businessmen  should be ready.

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