MtaI appeals to government to bring medical devices under 5 percent GST slab

Mumbai, July 19, 2017

Medical Technology Association of India (MtaI) has urged the government to reconsider varied tax rates on medical devices under GST and bring medical devices under 5% GST slab to reduce the cost of medical service to patients, and also attract investments to the sector.

Many medical devices have seen higher GST rates than the embedded tax earlier. The increase ranges from about 1.5% (for devices attracting 6% CVD earlier) to 4.5% (for devices under nil CVD). Besides, the maintenance cost of the Capital Equipment went up by 3%, owing to increase in GST to 18% vs previous Service Tax rate of 15%. There was an across-the-board increase in custom duties board in early 2016 as well. A successive increase in GST will force the suppliers to raise prices of devices. This will only add to the cost of medical services. A lower and uniform GST rate of 5%, when combined with the anti-profiteering law would have helped to bring down the cost of medical service to patients, and also attract investments to the sector and expand reach, said MtaI in a press note.

The current GST dispensation for healthcare that keeps the hospital services exempt from GST (which also means that the hospitals will not be able to avail input tax credit) and fixes rates that range from 5%-28% on medical devices will do little to lower the existing medical costs for the common man.

In line with the Association's earlier recommendation, it would have helped if the medical services were zero-rated, similar to exports, where full tax credit against inputs would be refundable, and all devices were taxed at a standard rate of 5% GST, it added.

The industry body appealed to the government to look into the concern of industry over certain transition related provisions of GST such as restricting the input tax credit on opening stocks for one-year period and allowing the same when sold within six months. The non-availability of input tax credit is causing losses to the industry. Medical devices are under service and support obligations post installation and it is critical to ensure the availability of spare parts for 8-10 years. This at times requires the suppliers to keep inventory for more than one year.

The current presumptive credit of 40%/60% is very low compared to taxes actually paid on transition stocks. It would have been better to include all devices under the rules laid down for credit transfer document, as these currently cover items costing more than Rs. 25000 per unit, it opined.

Similarly, equipment service engineers that are located across the geography also need to carry essential set of spares with them to render urgent service in case of break-down. There are no specific provisions in the existing law that clarify the tax position in such cases, and as a result the industry is in a predicament in meeting the service requirements while complying with the law, it added.

Trials and samples that are inherent to the healthcare sector have been denied input tax credit. These allow the doctors to select and recommend a product that is best-suited to each patient. These by their very nature are normal business costs in the medical device industry and are already built into the product pricing. These should therefore be removed in keeping with the principle of equity, in line with the practices followed in other contemporary economies where GST is implemented.

Provisions related to the transfer of input credit need to allow locations such as training centres, service centres, sales offices etc. to transfer their input credit to distribution locations to ensure a full flow-through of GST. Current timeframe of 6 months for supplies under “sale on approval” basis, should be extended to 12 months in keeping with requirements of the medical devices industry, MtaI added.

All these provisions of GST are contrary to ease-of-doing business. It was expected that GST would reduce cost of compliance and provide entrepreneurial impetus, it concluded.