GST Rollout: Indian medtech firms request govt to go easy on medical devices

New Delhi: In a slew of letters, the Association of Indian Medical Device Industry (AIMED) has asked the government to address the issue of multiple tax slabs within the just rolled out Goods and Services Tax (GST). These letters written to the Finance Minister, Arun Jaitley, followed by Chief Economic Advisor, Arvind Subramanian and A.R.S. Kumar, Commissioner, CBEC, point out to the loopholes which could affect the medical technology industry adversely.

“While GST is a very welcome and overdue tax reform, there are too many slabs – 6 not 4 !0%, 5%, 12%, 18%, 28% and 28+cess,” mentioned the letter to Mr Subramanian while asking, “Now there will be political and lobbying forces in play (and pay) for moving from one slab to another! Why not keep it simple as in most countries so one is motivated to be honest ? 3 or max 4 slabs were good enough”

At the same time, Association has also complimented Government for forming Sectoral Working Group to take along all the stakeholders in this path breaking indirect tax reform. “We appreciate and place our deep gratitude for reducing GST rates, for all IVD diagnostic kits and reagents (HSN 3822) from 18% to 12% on 16^th GST Council Meeting held on 11^th June, 2017,” mentioned its previous request letter to Mr Arun Jaitley dated June 01, 2017.

Yet the Association feels that all this huge expectation on GST being a boon for Consumers is an overly hyped expectation as products other than consumer durables are usually sold on MRP including taxes and not on transaction value, so last seller (whether retailers or hospitals) who will gain on lower cost of procurement will be the gainers – We doubt if many(or any) will pass on this cost savings benefit to Consumers as an  MRP,  less a discount! So impact for consumers may be nil, it said in the letter to Mr Subramanian.

AIMED expected that for Medical Devices, the GST would be at 5 or 12 %. Its letter says that the GST will make Indian products non competitive against imports. It fears that the higher GST will lead to higher competitiveness of Indian manufacturers against imports upto a certain point , beyond 18 % GST it will erode competitiveness and curb consumption and there will be risk of grey market in service industry – professionals/ Healthcare services etc. “We would recommend keep all services at a nominal GST of 12% for general services and lower of 5 % for Healthcare Services,” it mentioned.

The argument put forth by the AIMED is that if manufacturer subcontracting out services can set off GST paid on services why not an Individual Consumer. “If Government has to motivate Consumers to be honest tax payers best is to keep it reasonably low,” it says.

“For Medical Devices and other FMCG it may be a good idea to put a 1% GST Cess on MRP ( not transaction value) on all medical devices and consumer goods to control artificial inflation- this will penalise manufacturers and importers putting a high MRP on their products and reward those putting a low, reasonable MRP . This will be a deterrent to using High MRP as an inducement to retailers and hospitals to push their products – which is already leading to rapid artificial inflation in the country as competitiveness has got skewed- it’s no more about more value for same (or lower price) , it’s become who offers a higher margin to the trade – consumer be damned ! Ethics ? These are forcefully being kept aside as you either play the game or be jostled out of the retail shelf space.”

“Currently on most Medical Devices it’s 6% Excise and 2% CST – approx 8 % .So a 5% GST on transaction value and 1% GST on MRP would keep it overall similar for those manufacturers whose MRP is a nominal 3 times the Ex factory price . If someone is charging MRP at 10 times (or higher )then he will be severely impacted and he will be motivated to reduce his MRP to avoid paying high GST cess. The 1% Cess on MRP (at 10 times ) will then be equivalent to 10% GST – so impact will be approximately 15% against 8%,” mentioned Rajiv Nath, Forum Coordinator, AIMED, “Govt has mooted putting a Cess on GST on luxury goods. GST cess should not be linked to luxury goods , it should be linked to trade margins – so if they are high or excessive you pay higher Tax.”

In another letter to Mr A.R.S. Kumar, Commissioner, CBEC, Sectoral Working Groups – Drugs & Pharmaceuticals, AIMED has request to change GST Slab for few Medical Devices.

We regret to note that the Slab Rate of GST for HSN 9027, 4818 and 9402 continues to be maintained at 18% which creates concerns among some of our Members as these cover In Vitro Diagnostic – IVD Analyser (902750), Hospital Furniture like Beds (94029010), OT Table (94029090), Dentist Chair (94021010).

The Medical Devices – IVD Analysers being adversely impacted by 0% Basic Custom Duty and 18% GST under 90275as per AIMED include Bio Chemistry Analyser, Elisa Instruments, Hematology Anlysers, Electrolyte Analysers and Coagulation Analysers, etc.

“As you know, cost of drugs and diagnostic constitute about 70% of health expenditure in India estimated for 5 crore people below poverty line annually. Therefore, diagnostic tests not only need to be “available”, but they also need to be “affordable” and “accessible” in order to be able to make a real impact. Diagnostics is no longer a luxury, it is basic preventive healthcare need for every human being which GST Council has kindly considered them for IVD Reagents. Please also consider for IVD Analyzers,” it requested the government.

Keeping all these in view, AIMED requested the government to consider caping the GST slab to 12% for Medical Devices bearing HSN 9027, 4818 and 9402 as is being applicable on other Medical Instruments and Diagnostics listed in 9018.

“Additionally, If we apply Fitment Formula for GST rate, medical devices like Intra Ocular Implants (90213900) for treating Cataract, previously bear CVD – 0% and SAD – 4%. A very few States impose VAT @ 5%. Similarly, parts and accessories of CT Scanner / Ultrasound Scanner (90229090) bear CVD – 0% and SAD – 4% and attracts VAT @ 5% in States. Therefore, these may consider to be fit for 5% slab of GST. It is requested to kindly keep IOL and other 9021 items and parts and accessories of CT Scanner / Ultrasound Scanner (90229090) at 5% GST Rate as requested by our Members,” concluded the letter.