Hospitals May Have to Split Medicines, Services Bill for Tax

The Goods and Services Tax (GST) Council will soon consider a proposal that makes it mandatory for hospitals to bill medicines and hospitalisation charges separately, a move that could help plug any leakage in GST collection from healthcare providers. Such a measure is also seen benefiting consumers as it will make hospital bills more transparent. Hospital bills typically include charges for both medicines and hospital services. While medicines and consumables attract GST, with some under the maximum retail price (MRP) regime, hospitalisation services usually do not face tax. Tax authorities are worried that hospitals could be charging in-patients for GST on medicines, but the tax may not be reaching the exchequer due to bundling of bill of hospitalisation charges and medication.

“There is a thinking that hospitals should have separate bills for medicine and hospital services…This will bring transparency for consumers as well,” an official privy to the proposal told ET. The proposal will be taken up for discussion by the council on Saturday, the official said. Healthcare services are essentially GSTexempt, barring cosmetic surgery and hair transplant. Tax is applicable on implants and artificial limbs. A decision on the move will be taken by the GST Council, the apex decisionmaking body for the new tax that was rolled out last year. According to the official, authorities suspect patients are sometimes charged full MRP for medicines even though the hospitals may have procured the drugs for less. Tax authorities had, in some cities including Mumbai, visited a few big hospitals and sought information on various practices followed by hospital chains.

Unbundling hospital bills implies unregistered healthcare service providers would have to register with GST authorities, collect tax and deposit it. Some healthcare providers have been pitching for a 5% GST because in the absence of input tax credit, they now end up absorbing taxes paid on goods purchased from vendors. Input tax credit is not allowed as healthcare services are exempt from GST. Tax experts say supply of goods is incidental to service offered and it falls in the category of composite supply. “The concept of composite supplies needs to be reinforced in medical treatment and if required, a clarification issued that this concept would apply in case of exempted services as well,” said MS Mani, partner, Deloitte India.

They too have pitched for 5% tax on healthcare services to tide over the issue. “Hospitals typically treat the transaction as a composite healthcare service (exempt from GST) in case medicines are used in course of a treatment (for outpatients, generally medicines are bought directly by customers on which GST is paid)... It might be the right time to consider a 5% rate on healthcare services and allow complete input credits,” said Pratik Jain, national leader, indirect taxes, PwC. Jain said if the government wants to unbundle the medicine component from other services, then GST law may need to be amended to carve out an exception from the concept of composite service, and added that this again underlines the point that exemption becomes complicated under GST. The GST Council is expected to consider a slew of measures to further simplify the tax regime.

The Economics Times, 19th December 2018

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