Budget wish-list: Healthcare sector seeks boost in the form of GST reforms and increased spending

Healthcare providers and other stakeholders hope the upcoming Union Budget will give the healthcare sector a boost in the form of reduced GST rates, relaxed customs duties, and increased funding. 

Stakeholders in the sector also seek a lowering of import duty on medical equipment and policies that encourage R&D in advanced technologies and boost local manufacturing and rural healthcare.

Spending on healthcare

A key demand from the sector is increased spending on healthcare. Currently, India allocates around 1.5% of its GDP to healthcare, which is well below the global average of 3.5%. 

Increased spending would enable early detection of diseases and healthier outcomes for millions of people, notes Dr Anand Sivaraman, Founding Director and CEO, Remidio, a medical device company. 

Taxes and import duties

In India, most healthcare services provided by hospitals, doctors, and paramedics, such as ambulance service and diagnostic tests, are exempt from GST. However, hospital room rent (excluding ICUs) exceeding Rs 5,000 per day is subject to a 5% GST, while rooms priced at Rs 5,000 or less are tax-free. Healthcare services provided to business entities, such as occupational health check-ups for employees, are taxed at 18%. 

The sector is hoping for a host of changes in the tax structure, including rationalisation of GST, tax concessions, and other benefits, apart from lowering import duty on advanced medical equipment. 

Founders of healthcare startups and other stakeholders urge the government to offer tax holidays for greenfield healthcare projects, and provide tax credits to reduce treatment costs. 

Another consistent demand is the need for a uniform GST rate on medical devices. At present, the GST rate on medical devices varies from 5% to 18%, causing complexities for manufacturers and distributors. 

The GST rate varies depending on factors such as the device’s essentiality, classification, and policy intent. Essential life-saving devices such as implants and orthopaedic aids are taxed at a lower rate of 5% to ensure affordability, whereas non-essential or premium devices, like advanced diagnostic equipment, fall under higher tax slabs of 12% or 18%. 

Additionally, the classification of products such as raw materials and finished goods also influences the tax rate, as does the government’s objective to protect domestic manufacturers by imposing higher taxes on certain imported items.

According to stakeholders in the sector, the multi-rate structure increases compliance costs due to the need for accurate classification and extensive documentation This especially affects small and medium manufacturers, they say.  

For distributors, a higher tax rate locks up working capital as input tax credit, impacting cash flow.

Furthermore, the higher taxation on certain devices raises treatment costs, affecting affordability for patients and healthcare providers. Besides, there are supply chain complexities as manufacturers pass on the higher taxes to retailers.

Dr Sandip Shah, Joint Managing Director at Neuberg Diagnostics, calls for reduced GST on diagnostic services and equipment. 

Healthcare players also point out the need to address the inverted duty structure in the healthcare sector to promote domestic manufacturing.

According to the inverted duty structure, the tax rate on inputs (raw materials or components) used to manufacture medical devices or healthcare products is higher than the tax rate on the finished product. This leads to financial constraints and operational inefficiencies for manufacturers, says Chandra Ganjoo, Group Chief Executive Officer, of Trivitron Healthcare.

Additionally, filing for input tax credit refunds increases compliance burdens and costs. Overall, this discourages local manufacturing, conflicting with the government’s ‘Make in India’ initiative and affecting the affordability and growth of India’s healthcare sector, opine players in the healthcare sector.

“Increasing R&D incentives and tax benefits are necessary to encourage innovation and competitiveness,” says Ganjoo. 

High import duty on advanced technology and equipment makes treatments costly. “Lowering these duties and promoting domestic manufacturing through ‘Make in India’ can significantly reduce costs,” suggests Ganjoo. 

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Need for a simplified regulatory framework

Pharmaceuticals and medical devices in India are both regulated by the Central Drugs Standard Control Organisation, but they are governed under different frameworks and regulatory rules within the organisation.

Ganjoo bats for a simplified regulatory framework to eliminate bureaucratic hurdles and setting up a dedicated authority focusing on medical devices, distinct from pharmaceuticals. 

Health insurance

On the insurance front, Ramesh Kannan, Partner at healthcare-focused Somerset Indus Capital Partners, believes health insurance should be encouraged and supported with significant tax concessions. 

The impact of concessions on premium paid—such as tax exemptions on premiums and GST concessions on services delivered under insurance—can bring a larger population into the system. “This will enable more and more people to get into insurance and bring about a robust system that benefits all,” he says. 

R&D and innovation

To boost R&D and innovation in the healthcare sector, players in the sector seek financial incentives, funding, and skill development programmes from the government. 

Dr Sandip Shah, Joint Managing Director, Neuberg Diagnostics, says, “Key expectations include financial incentives to promote the development of advanced diagnostic technologies and enhanced funding for government-led screening programmes for non-communicable diseases and infectious conditions.”

Supporting R&D, cross-border alliances, and skill development programmes will help Indian manufacturers meet international standards and foster innovation, says V S Sudheer, Group CEO, Maxivision Super Speciality Eye Hospital.