More healthcare services may come under GST net to boost tax collections

The government may bring certain healthcare services under the GST net, touching upon a sensitive area, as it looks to give a leg up to revenue mobilisation hit hard in the ongoing economic slowdown.

Official sources said the Finance Ministry, which had deliberations with the state governments on measures to boost GST revenue, is likely to recommend bringing premium healthcare services under the GST net with rates of either 12 or 18 per cent.

These could include high-value implants and medicines given to patients who are taking premium services from a healthcare service provider (hospitals, nursing homes). The taxable items may also include the use of premium room and food and beverage services by patients.

All healthcare services by a clinical establishment or authorized medical practitioner by way of diagnosis or treatment or care for illness, injury, deformity, abnormality or pregnancy are currently exempt from GST. However, hair transplant or cosmetic or plastic surgery does not get an exemption and is taxed.

Similarly, while medicines attract four different GST rates of nil, 5, 12 and 18 per cent, drugs used during hospitalisation are not taxed.

"Healthcare is a vast area and certain services border on luxury or may not be essential to save the life of a patient. These may be considered for higher duty if the GST Council is unanimous on expanding the scope of taxation of healthcare services beyond hair transplants and cosmetic surgery," said a state government official actively involved with the Council.

Increasing tax collections

The GST Council is meeting on December 18 to take stock of the evolving situation where lower growth in GST collections has pushed the Centre to delay paying compensation to a few state governments as per agreed framework of the new indirect tax regime. The Centre has to ensure 14 per cent growth in baseline GST collections every year and meet any shortfall.

Under the plan in works for taxing healthcare services, the thinking is to make it mandatory for hospitals to bill medicines and hospitalisation charges separately. This, while plugging the leakage in GST collections, is also expected to boost tax collections from healthcare providers. Once this segregation happens, medicines used during hospitalisation would also attract tax. This is expected to increase the cost of healthcare services but would make the hospital bills transparent.

Also, the entire healthcare services at hospitals may be given a threshold in terms of actual spentfor availing of the service. If that spend is beyond a prescribed threshold, GST could be charged on such services that get complete exemption at present. This would mean that if a patient at a hospital is availing of room services in the premium category, the same could be taxed. The same principle may apply for implants and other high-value specialised consultancy services.

The GST Council is looking at an overhaul of the taxation in the wake of revenues falling short of expectations. The plan is to reduce the rates and bring even exempted items under taxation. Sources said a three-rate structure of 8, 18 and 28 per cent may be looked at by the Council at its next meeting. But its implementation would be carefully planned.