Govt Should Remove All Taxation On Healthcare
The government must take a fresh look at the taxes imposed on the healthcare sector to help hospitals reduce costs of treatment in a more comprehensive way
When 54-year-old Ram Kumar underwent an emergency cardiac surgery to correct his arrhythmia, a major chunk of his savings was spent on his treatment including meeting the cost of a pacemaker, hospital stay and medication. Absence of an insurance cover meant the entire treatment was paid out of his pocket. A teacher at a private school, Ram Kumar had toiled hard to save money for his daughter's higher education. Having spent it on his treatment, he is now seeking loans from friends to ensure his daughter is able to pursue an MBA from a good institution.
Ram Kumar is not a one-off case. According to a 2011 study published in the Lancet journal, 39 million Indians are pushed into poverty every year due to medical costs. Overburdening of public hospitals and lack of quality healthcare in smaller towns are major ills bedeviling the health sector. The poor state of public hospitals in most parts of the country forces an increasing number of patients to seek treatment at private hospitals. The rising demand has in turn served to up the cost of treatment. According to estimates, healthcare inflation has reached almost the 20% mark in recent times.
Apart from surging demand for private healthcare, another factor that contributes to high cost of healthcare is the imposition of service taxes on certain aspects of healthcare. This includes substantial amount of taxes on services provided to hospitals such as construction as well as customs levies on some medical imports.
Providing universal access to healthcare is among the most important responsibilities of a government. Successive governments in India, both at the centre and states, have recognized this goal. Yet the objective of universal healthcare remains a distant dream. To be fair, for a country of a billion plus people, it is practically impossible for the government to provide public healthcare to all. The private sector might be much-maligned in our country, yet its significant role in filling up the void left by the government in different areas of healthcare services cannot be undermined. To make healthcare more affordable for common people, the private sector needs policy support from the government. The government's recent move to fix a price ceiling on stents might have been a welcome step to regulate the cost of cardiac treatments. However, it impacts only a small number of patients. On the other hand, removing taxation on the healthcare sector will go a long way in making healthcare more affordable and accessible to a large number of people.
The government must take a fresh look at the taxes imposed on the healthcare sector to help hospitals reduce costs of treatment in a more comprehensive way.
Let's take a look at the most prominent such taxes
Tax on services for hospital construction:
While the government levies no service tax on medical treatment, except on cosmetic surgery, a number of other sources of taxation serve to raise the cost of hospital services significantly. One of the most prominent is the tax levied on services provided to corporate hospitals. This includes taxes on procuring inputs for construction of new hospitals, repair, expansion and maintenance. If a hospital being constructed at an investment of Rs 200 core has to pay 20% of its construction cost towards taxes, it raises the total expenditure by a whopping Rs. 40 crore. Even if a private entity works ethically, it is pertinent for its survival to break-even and start earning profits. This component of the tax invariably forces hospitals to raise cost of its services for people. This tax also impedes the government objective of encouraging the setting up of more hospitals, especially in smaller towns and cities.
Import duties on medical devices
In the aforementioned case of patient Ram Kumar, his treatment would have cost him almost Rs 50,000 less, if not for the customs duty on the import of pacemakers.
India relies heavily on imported medical equipment to treat its patients. In fact, according to estimates arrived at in 2013, almost 75 per cent of the medical devices and equipment used in India are imported. This includes an entire range of life-saving medical resources such as pacemakers, catheters, stents and radiation and diagnostic equipment. As part of its efforts to promote local manufacturing, the government raised customs duty on a large range of medical equipment last year, making imports costlier. While promoting indigenous manufacturing is a welcome step, raising import duties without an adequate upgradation of local manufacturing capability can be counter-productive. The high import duties, accompanied by the constant depreciation of the Indian rupee, have made quality medical equipment costlier for the hospitals, and in turn for the patients.
Service tax on Insurance premiums
When asked why they do not have a health insurance cover, a majority of patients cite their inability to pay high premiums. Yet, even as the government is launching ambitious plans to roll out a national health insurance scheme, it has not given enough tax breaks to make insurance more affordable. Over the past two years, the service tax levied on insurance premiums has gone up from 12.36 per cent to 14.5 per cent. As discussed at the outset, out-of-pocket expenses in India are much higher as compared to other emerging countries. In such circumstances making insurance costlier by levying a high service tax on premiums deters people from purchasing a cover.
What else government can do?
To help allow greater penetration of healthcare services, the government can also institute a medical innovation fund or a healthcare infrastructure fund that can be availed by medical entrepreneurs who have potentially revolutionary ideas to change the healthcare delivery scenario in India. Especial preference must be given to medical entrepreneurs in rural areas and smaller towns where lack of quality healthcare is a major concern. Making seed capital available to the healthcare sector can help hundreds of men and women with relevant business ideas in the realm of healthcare launch their vehicles and revolutionize the sector.
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