Recently, the GST council in its 47th meeting recommended that the room rent (excluding ICU) exceeding Rs 5,000 per day per patient charged by a clinical establishment (i.e. hospitals etc.) shall be chargeable to GST at the rate of 5 per cent, however, the establishment would not be entitled to take input tax credit of the input and input services used while providing such services. The government has also issued a relevant notification, giving effect to the recommendation and has prescribed that it will be effective from 18th July 2022.
As a part of rationalising the exemptions, the government has removed the exemption provided on hospital room rents. The justification behind removal of such exemption is that such rooms constitutes a minuscule proportion of the total available rooms in the healthcare sector.
However, healthcare industry and various healthcare bodies does not seem to be inclined with the decision of the government to tax the healthcare sector and have asked the government to put the decision in abeyance, citing that the healthcare services have never been subjected to indirect taxes in India and such additional levy would cause burden on the ultimate patient.
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Even in the erstwhile regime, healthcare services were exempted from the levy of service tax. This is the first time in the history of indirect tax laws, where such services have been brought under the tax net.
According to the inputs from the National Sample Survey, more than two third of the total patients seeking medical care in India choose a private hospital, while only 38 per cent use public health facilities for in-patient care. India also has one of the highest levels of out-of-pocket expenditures on health in the world, Indians spend 65 per cent of the total expenditure on health straight out of their pocket. In such a situation, imposing tax on the healthcare services would further increase the expenditures of the individuals on such services. Further, this change will only impact the private sector hospitals, as the services provided by the government are anyways out of GST ambit (except certain specified services).
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Apart from various compliance requirements, there appears to be various practical challenges, as the hospital will have to keep separate records for the rooms having tariff more than Rs 5,000 per day and others. Non-availability of input tax credit will also lead to increase to add burden.
In nutshell, it is expected that the decision to levy GST on the healthcare services will have various repercussions attached to it. The resistance against levying tax, shown by healthcare industry, associations and political fronts is a clear indication that it is going to be very tough for the government in coming times. Apart from being a taxation issue, taxation on healthcare is also expected to trigger social sentiments.
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To balance out the burden increased by the levy, the government can consider to allow input tax credit on the inward supplies procured by the clinical establishments . It will effectively reduce or nullify the burden caused by levy of tax as the corresponding inward supplies will be of multiple rates such as 12 per cent, 18 per cent or 28 per cent, whereas the rate of GST being fixed to 5 per cent. Alternatively, initially the government can also plan to reduce the rate of output tax to 2-3 per cent.
The government needs to take steps very carefully to have this implemented in an appropriate manner.
This article was originally published on ET Now.