As the July 1st 2017 deadline for the roll out of Goods and Services Tax (GST) which is regarded as the most important tax reform in post independence era approaches, the anxiety in the business community is also on the surge and organizations are running helter-skelter for guidance, consulting and support. The Government seem to be determined to go ahead in an approach wherein the scheme is launched and then make it perfect.
How disruptive and detrimental this new tax regime will be to my business is the primary question businesses owners and managements are asking. The executive class is having the other set of questions which are related to the process of compliance and the readiness of the systems. Although the provisions in GST are across sectors and generic in nature for making this article more palatable the focus would be on the specifics related to the Healthcare sector and the perspective is of a Hospital CIO.
Before we proceed with the nuances of the new tax regime let us first recap on the existing (i.e. pre-GST era) tax structure in the case of Hospitals
Revenue – Outward Supplies:
- Hospital provided Healthcare Services are exempted under Service Tax
- On Other services there is a 15% service tax
- VAT is applicable on sale of Pharmacy, Dental and Food Items
Expense – Inward Supplies
- Service Tax on procurement of services
- VAT on procurement of Goods
What is Goods and Services Tax (GST)?
Goods and Services Tax (GST) is an indirect tax throughout India to replace taxes levied by the central and state governments as part of a major reform being proposed by the Government.
It was introduced as The Constitution (One Hundred and Twenty Second Amendment) Act 2017, following the passage of Constitution 122nd Amendment Bill. The GST is governed by GST Council and its Chairman is Union Finance Minister.
The following graphic shows the current Tax structure in India
Although the core objective of the introduction of GST is to simplify tax administration and have a one country one tax regime, the federal nature of our country has led to the incorporation of State and Central GST, aka Dual GST wherein the states continue to benefit from the new regime however it will be uniform across the country.
The following graphic shows how the new GST replaces the central and state tax structures
The following is a summary of the overall GST applicability
- For Import of Goods, IGST has to be paid in addition to Basic Customs duty
- CGST & SGST / UTGST on Intra-state supplies of Goods or Services i.e. when Seller and Buyer are in same
- IGST on Inter-state supplies of Goods or Services i.e. when Seller and Buyer are in different States
- Entry Tax which was prevalent in some states will be completely abolished
- IGST applicable for Import of Services
- Export of Goods or Services continue to be Tax exempted
GSTIN registration is the first step in the direction of compliance and the following are the guidelines for the same
- 0 to 20 lakhs – no registration
- 20 to 75 lakhs – simplified registration
- >75 lakhs – full-fledged registration needed
A vendor registered in different states has to be defined separately. GSTIN structure has state + PAN Number + Some Serial Number
One thumb rule to remember is that the applicability of GST is at the time and point of supply.
PO, GRN, Invoice and Tax reporting is the new 4 way matching that will be followed under GST
So what are the specifics when it comes to the application of GST in Hospitals?
GST compliance in Hospitals
As Healthcare services continue to be exempted in the GST regime there is some respite for the Hospitals.
Having said that there is still enough work to be done on the GST front for the following reasons:
- A lot of goods and services offered by the Hospital where GST is applicable need to be configured. Examples include Pharmacy, Food and Beverages, Dental and Cosmetic Surgeries/ Procedures.
- Easy identification and clear segregation of the exempted goods and services as against the taxable ones
- Traceability of PO, GRN and Invoice
- Regular Filing of the GST Returns. From Finance/ Accounts Perspective this area needs a lot of attention as there will be manifold increase in the filing efforts due to the amount and number of times the data has to be prepared, uploaded, matched and credits taken. As an example the tax returns filing happens once in a quarter as against in the GST era it would be a minimum of 3 times in the month.
- Tax Credit is going to be automated on the GST systems hence the need to constantly follow up the same.
As far as operational software used in the hospitals are concerned the following is an overall summary of changes needed
- Those related to the expense/ purchase or inward supply of goods related like Vendor Master, PO, GRN, Vendors Invoice etc.
- Those functions related to the income generation, i.e. Billing and Invoicing
- The new functionality related to the GST filing and compliance
The following is a brief list of changes to be done in the first two areas (typically covered as part of HIS or ERP as your case may be) mentioned above
a) Vendor Master – Add details such as GSTIN (could be multiple of them), GST Compliance rating, reasons for non-registration, whether vendor is under composition scheme, whether service charge is applicable or not? Please note that place of supply is important hence the need to have proper address
b) Product, Service Item Master – Add HSN Code for Goods and Service Accounting Code for Services and Tax Rate
c) Tax Invoice – This is basically for all taxable items. Add GSTIN of Supplier, GSTIN of Recipient, HSN or Accounting Codes, Rate of Tax (CGST, SGST, or IGST) , Amount of Tax (CGST, SGST, or IGST), Place of Supply, Place of Delivery, Whether the tax is payable on reverse charge, and Signatures. Do need to clearly mention the title as Tax Invoice
d) Bill of Supply – This is used for all exempted goods and/or services or for tax under composition scheme
e) Purchase Order – Need to have GSTIN of Vendor, Purchaser, GST Rates and Amount in addition to the regular details
f) Receipt Voucher issued in respect of receipt of advance payment to supplies should contain GSTIN, rates applicable and amount of tax charged. This will be applicable more for Unregistered suppliers as patient is not taking credit
g) Payment Voucher and Refund Voucher also need to have provisions for GSTIN and GST tax details
GST Returns Filing
As far as GST returns and compliance filing is concerned there are specific formats created by the Council, the most important are GSTR1 and GSTR2
GSTR1 – For filing Income, GSTR2 – For filing Expense, GSTR3 – Net between the two.
For B2B transactions the details have to be submitted at a line item level
For B2C One line item for Income – mentioning the service as exempted, For Taxable also one line item is enough
Collect the details such as GSTIN, HCN, Service Accounting Codes and Applicable Taxes from various sources and upload/enter the same in the appropriate functionalities mentioned above
The supplier cannot charge GST on top of the current price hence there is a need to engage with the vendors and negotiate prices. The price actually should come down as Excise and hidden taxes are all removed
Some salient points to be noted
I) All procurement of goods or services from unregistered vendors subject to reverse charge. Company to raise a self invoice and issue a payment voucher for such procurements
II) Separation of Tax and Non Tax Invoices
III) Composite Supply that involve Taxable and Non Taxable items – the thumb rule is to look for predominant one
IV) Equipment movement to other legal entity – tax to be paid at market value
V) Tax has to be calculated on the Original Price and not discounted price – Ex Subsidized food
As GST applicability is Hospitals in limited to certain areas or departments we will focus on the ones getting maximum impact namely Pharmacy, Food and Beverages and Purchase
Is one area that has the maximum impact as far as GST is concerned both from purchase/buy side and billing/sell side. It needs a focused attention in preparation of masters related to vendors, product, purchase documents and readiness of the hospital bills showing the appropriate tax of CGST, SGST/UTGST
Food and Beverages
Like Pharmacy the other department that also impacts heavily in a similar manner is the Food and Beverages. Here too the purchase/buy side and the billing/sell side both need to be taken care of.
The place of service is important in this area as there are different tax slabs for A/C and Non A/C restaurants. In the case of A/C restaurants it is 18% and for Non A/C it is 12%
Purchase Department has a lot of tasks to be carried out some of them are mentioned below
- Need to follow up with Vendors and get their GSTIN details and re-negotiate prices
- Insert new clauses for GST in all purchase orders
- All transit purchases must be completed before transition date
- Minimize procurement from unregistered dealer – look for alternative options
- Reconcile the vendor account up to the date GST transition. All debit note / credit note should appropriately be adjusted before GST transition date
Apart from the departments mentioned above the others to look out for are Cosmetic and Maxillofacial services, Laundry and Rentals be it for commercial space or for ATMs etc. which are all taxable under GST
To conclude, GST is a major step in the right direction, operationally is a major disruptor that organizations can afford to ignore. We are likely to hear more updates and adjustments from the Government in the initial days of implementation to facilitate the process till it stabilizes.Leave a reply