A robust healthcare infrastructure is crucial for providing affordable and quality care to citizens in both urban and rural areas. However, India’s current infrastructure is significantly lacking, with only 0.55 beds per 1000 population compared to the WHO norm of 3.5 beds. Most of this infrastructure is concentrated in the top 20 cities, leaving rural areas underserved. India needs 2 million additional beds to achieve universal health coverage by 2025.
GST Impact on Healthcare Infrastructure
Under the Goods and Services Tax (GST), hospitals, clinics, and nursing homes are exempt from tax. However, inputs like building construction, medical equipment, and hospital consumables attract a GST rate of 5% or 12%. Additionally, certain life-saving medical devices are also exempt from GST. This differential taxation treatment presents several challenges.
Input Tax Credit Issues
One of the primary issues is the lack of full input tax credits for healthcare infrastructure creation. Since healthcare services are exempt from GST, hospitals cannot claim refunds on the taxes paid for construction materials (like cement and steel) and medical equipment. This situation creates an inverted duty structure, increasing capital costs and impacting the viability of new projects. Healthcare infrastructure requires significant upfront investments, often running into hundreds of crores of rupees. The inability to claim input credits hinders new capacity creation.
Compliance and Documentation
Another challenge is the compliance burden associated with maintaining GST exemptions. Healthcare providers must regularly assess their eligibility under various statutes and meet state-level requirements. This process involves additional paperwork and complex documentation. Consequently, this administrative burden increases operating costs, particularly for smaller establishments that may lack the resources to manage extensive compliance requirements.
GST and Healthcare Affordability
One of the government’s key objectives with GST was to make healthcare more affordable and accessible across regions and income levels. However, the impact has been mixed.
Benefits for the Insured and Financially Stable
For those who are insured or financially stable, GST has helped bring down treatment costs through the benefits of seamless credit flow and the consolidation of indirect taxes. Corporates providing health insurance to employees have also seen a moderation in premium hikes post-GST, as medical inflation has cooled down.
Room Rent and Medical Products GST Rates
| Product | GST Applied |
|---|---|
| Room Rent Below Rs. 1,000 | 0% |
| Room Rent Between Rs. 1,000 to Rs. 2,499 | 12% |
| Room Rent Between Rs. 2,500 to Rs. 7,499 | 18% |
| Room Rent Above Rs. 7,500 | 28% |
| Surgical Products | 12% |
| Wheelchairs | 18% |
| Insulin | 5% |
Challenges for Economically Weaker Sections
Despite these benefits, out-of-pocket expenses remain high for economically weaker sections who rely on the public healthcare system. Although healthcare services are exempt from GST, systemic issues such as infrastructure shortages, resource crunches, and insufficient doctor-to-patient ratios limit the benefits that can be passed on to patients below the poverty line. They continue to struggle to afford quality care.
Accessibility in Rural Areas
In rural areas with inadequate healthcare infrastructure, GST’s benefits have not directly translated into more accessible facilities. While GST can facilitate the availability of affordable infrastructure and drugs, out-of-pocket expenses for medicines and treatments can still significantly impact the finances of farmers and daily wage workers.
Conclusion
To make healthcare truly affordable and accessible for the poorest segments of the population, India must focus on enhancing capacity in tier 2 and tier 3 cities and ensure universal health coverage. GST can play a role in facilitating these changes, but without substantial public investment, its impact on healthcare accessibility will remain limited.
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Published on: May 30, 2024