The GST is perhaps one of the most important tax structure reforms India has made, targeted at harmonizing all indirect taxes to bring about simplicity in the tax system. So, with the recent 18% GST on health insurance premium, there is a lot of tussles on whether this will affect the affordability of healthcare services.
Implication of Reducing GST levels on Healthcare Services in India:
The rationale behind this proposition is regarding the implication for consumers, healthcare industry, and the economy as a whole. Reduction of the GST level raises a question over whether the current GST framework applied on health care services is effective.
Current GST Framework on Healthcare Services
GST Rates on Health Insurance: Health Insurance Premiums: Currently taxed at 18%, this rate exponentially increases the cost of insurance for consumers.
Reinsurance: At such a high tax, making the same unaffordable for both the reinsurer as well as the policyholder.
Healthcare Cost Impact
Increased healthcare cost across the various verticals. For instance: Dialysis Treatment: patients were paying more for dialysis machines and supplies because both are charged 12% when it is possible that the patient needs to undergo dialysis frequently.
Cancer Treatments: Nearly all cancer treatments now carry added costs due to the GST, with some patients facing up to an additional 12% above their actual costs.
Revenue Collection
As a result, ₹8,262.94 crore is collected in FY 2023-24 as GST on health insurance premiums. The figure captures revenue from the taxation of health services, but the underlying need for affordable healthcare raises concern over whether it is sustainable.
Advantages of Reducing GST Rate on Health Care Services
Increased Affordability: Lowering GST in health insurance could significantly lower premium prices, thus making health insurance affordable for middle-class families and senior citizens who are the most disproportionately burdened by higher insurance costs.
Higher Coverage Inducement: Only about 30% of the population of India has any form of health insurance. Therefore, a reduction in GST could foster better incentives for more people to buy insurance, thereby increasing overall coverage.
Economic Gains
Long-term Revenue Benefits: The short-term loss of revenues resulting from the reduction in GST rates would be a cause for concern estimated at between ₹650 crore and ₹3,500 crore depending on whichever of the alternatives is chosen, but increasing the population’s health insurance coverage may increase better long-term revenue through increased total economic activities and lower healthcare expenses.
Support to Government Programs: It supports the national vision of “Insurance for All” by 2047, thereby making health insurance accessible and affordable for every citizen.
Social Equity
Reducing Inequality: High healthcare costs work to disproportionately burden the poor. Reducing GST would reduce that disability for many of them.
Relief for Marginalized Groups: Elderly and people with illnesses, for example, have a higher cost; selectively reduced may ease their burden.
Proposed Options Under GST Reduction
The GST Council is discussing various proposals related to the reduction of health insurance GST rates as given below.
Complete Exemption: A complete exemption from GST would considerably bring down costs to consumers, but at the expense of large revenue loss
Rate to 5%: In absence of ITC, a rate of 5% is at an appropriate level between being revenue maximizing and being an affordable cost.
Targeted Exemptions: There is the exemption of rates wherein premiums paid by senior citizens or those covered up to ₹5 lakh can be a particularly targeted population that may benefit from this kind of exemption while yet bringing in some revenue.
Financial Implications
The financial impact of such proposals will differ widely:
– A complete exemption will lead to a loss to the tune of ₹3,500 crore.
– Bringing in rates at 5% may lead to a loss around ₹1,750 crore but yet bring in revenue.
Obstacles in GST Rate Cuts
State Apprehensions: The states fear revenue losses at the hands of reduced GST rates. States are said to account for nearly 50% of GST collection. Any rate cut is bound to significantly shift revenues at their door, particularly with states not being compensated for the initial losses as they were immediately after GST was rolled out.
Anti-profiteering Measures: Traditionally, anti-profiteering laws had been passed to ensure businesses pass tax savings on to consumers when rates were decreased. Since these laws are currently inactive, it is doubted that insurers will lower premiums if GST is cut down.
Recent News:
The GST Council is mulling reducing the existing 18% GST charged on health insurance premiums because of rising costs and low penetration of insurance in India.
The options floated include:
1. Full exemption on all health insurance premiums. The government is believed to lose around ₹3,495 crore.
2. 5% GST: The total loss will be ₹1,750 crore.
3. Senior Citizens or up to ₹5 lakh: It is expected to cost the revenue a loss of about ₹2,110 crore.
Data submitted to the Lok Sabha in August 2024 indicates that GST collections of insurance premiums during the last three fiscal years have increased from Rs 5,354.28 crore in FY 21–22 to Rs 8,262.94 crore in FY 23–24.
Revenue realizations under GST on health reinsurance premiums also rose from Rs 825.95 crore to Rs 1,484.36 crore.
Conclusion:
The demand for a reduction in GST on healthcare services in India is, therefore, more of a social equity and public health issue than an economic one. Against the rising costs of healthcare that are piling up huge challenges for hundreds of millions of Indians, particularly vulnerable populations, there is an urgent need for policymakers to also consider reducing or exempting health insurance premium taxes. That would not only make healthcare more affordable but also better align with broader national objectives connected with access to health care and social welfare.
The debates at the GST Council provide one excellent opportunity for change that can positively benefit millions of lives across India. As stakeholders weigh financial implications against social benefits, it would be essential that the final decision reflects a commitment to increasing the accessibility and affordability of healthcare for all the citizens of this country.
