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TAXATION OF PHARMACEUTICAL DRUGS: A BARRIER TO HEALTH AND WELL-BEING
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Article Details
TAXATION OF PHARMACEUTICAL DRUGS: A
BARRIER TO HEALTH AND WELL-BEING
AUTHORED BY - RAGHUNATH M.,
LL.M (Taxation Law), School of Excellence in Law,
Tamil Nadu Dr. Ambedkar Law University, Chennai
ABSTRACT
The introduction of the Goods and
Services Tax (GST) in India has made a remarkable advancement in simplifying
the taxing system and promoting economic growth. However, the imposition of
taxes on pharmaceutical drugs especially on essential medicines deviates from
the fundamental principles of the right to health as guaranteed by the Indian
Constitution. This paper examines the dynamic interplay between the right to
health and the taxing of pharmaceutical drugs, which exacerbated existing
healthcare inequalities. This research article also scrutinises price
differentials before and after the imposition of GST, examines the
repercussions of inflated costs on marginalised communities, and contextualises
the issue within broader public health concerns and it also compares the
existing taxing system of pharmaceutical drugs of India with Canada for
arriving at potential solutions such as exempting the essential medicines from
taxation or subject to lower rate of tax for universal access to essential
medicines, irrespective of individual’s socioeconomic status.
Keywords: Goods
and Service Tax, Pharmaceutical drugs, Public health, Essential medicines.
I.
INTRODUCTION
Nearly around 5 million Indian people
in every year forgo potentially life-saving treatment annually due to the
inability to afford medications, in part worsened by taxes. The landmark
introduction of the Goods and Services Tax (GST) in India promised streamlining
and efficiency across various sectors. However, in the case of pharmaceutical
drugs, which are essential for health and life, require a different approach.
Taxing essential pharmaceutical products undermines the ethical principle of
health as a fundamental right, which is emphasized in global health frameworks
and the Indian Constitution. This practice creates an unacceptable barrier to
access to essential medicines. The rising costs of essential medicines pose a
serious threat to individual well-being and worsen health disparities within
Indian society. Imposing taxes on pharmaceutical drugs, regardless of their
nature, adds a financial burden on those already struggling with illness or
chronic conditions. This practice contravenes the fundamental right to health which
is emphasised by the Indian Constitution and this highlights urgent need for
reform.
Pharmaceutical drugs are not mere
commodities; they are the foundation of healthcare. Imposing GST on these
essential products adds economic strain to consumers and the healthcare system.
Accessibility and affordability lie at the heart of universal healthcare.
Taxation on medicinal products can have several unintended consequences like
increased drug prices, making them less affordable for the general population,
particularly those belonging to economically disadvantaged segments. Vulnerable
populations, including the poor and marginalised, often face challenges in
affording essential medications. To mitigate increased costs, individuals might
delay treatment, purchase lower-quality medicines from potentially unregulated
sources, or even resort to harmful traditional remedies out of desperation.
These outcomes negatively impact health, increase long-term treatment burdens
on the healthcare system, and may perpetuate public health threats like
antimicrobial resistance.
Though, the government require
revenue through taxation, tax exemptions for life-saving drugs and
pharmaceutical products would represent a significant investment in the
long-term health of the Indian population. Such a move would align with
preventive healthcare policies, reducing illness, promoting productivity, and
alleviating future medical care costs. India could explore avenues such as
implementing progressive taxation models, strengthening social security
systems, and exploring targeted taxes on other, less essential goods to make up
for a shortfall caused by removing a drug tax.
II.
TAXATION'S IMPACT: AFFORDABILITY,
ACCESS, AND
HEALTH
A. Taxing of Pharmaceutical Drugs
Post Implementation of GST
Article 246A of the Indian
constitution empowers Parliament, and the Legislature of each State, to make
laws concerning goods and services tax that can be imposed by the central or by
such state and the rates for such goods and services shall be decided by the
GST council in accordance with Article 279A of Indian Constitution. Current GST
rates on pharmaceutical drugs were determined by the GST council and it is
notified by the central government vide notification 1/2017[1].
The tax is levied under 5 different rates namely NIL rate, 5%, 12%, 18% and 28%[2]
based on Chapter 30 of the HSN code HSN code of the item.
Medicines covered under the NIL tax
rate are as follows:
1.
Human blood and all components of human blood.
2.
All types of contraceptives.
3.
Services provided by rehabilitation professionals for
activities covered under the Rehabilitation Council of India Act, 1992.
4.
Sanitary napkins or tampons
Medicines covered under the 5% tax
rate are as follows:
1. Animal or
human blood vaccines
2. Insulin
3. Oral
rehydration salts
4. Diagnostic
kits for detection of all types of hepatitis
5. Deferoxamine
injection or deferiprone
6. COVID-19
diagnostic kit etc.
Medicine covered under the 12% tax rate is as follows:
1. Animal
blood for therapeutic, prophylactic or diagnostic uses
2. Antisera
and other blood fractions and modified immunological products
3. Toxins,
cultures of microorganisms (excluding yeasts) and similar products
4. ayurvedic,
homoeopathic, Unani, Siddha, or biochemical systems medicines
5. Toothpowder
6. Feeding
bottles and nipples of feeding bottles etc.
Medicine covered under the 18% tax
rate is as follows:
1. Nicotine
polacrilex gum.
2. Products
for oral or transdermal application or application otherwise containing
nicotine and intended to assist tobacco use cessation.
3. Hygienic or
pharmaceutical articles such as teats, hot water bottles, Ice bags, etc.
4. Preparations
for oral or dental hygiene and dental floss, sold in individual retail packages
etc.
At present, a 28% tax rate is not
imposed on any medicines by the government.
B. Classification Of Essential And
Non-Essential Medicines Fails To Ensure Equitable Access To Medicine For All
The World Health Organisation (WHO)
introduced the concept of essential medicines in 1977 and it
prescribes essential medicines list every year according to the population
needs at large. This list of essential medicines is prepared with due regard to
the relevance of public health, evidence on affordability, safety, and
comparative cost-effectiveness[3].
Certain medicines like Paracetamol
(acetaminophen), Aspirin (acetylsalicylic acid), Ibuprofen, Omeprazole,
Metformin, Amlodipine, Atorvastatin, Metoprolol, Insulin, Morphine,
Risperidone, Dexamethasone, Furosemide[4]
etc. are named as essential medicines by WHO but in India, these medicines are
again classified as essential and non-essential drugs and taxed at different
rates.
Every person's health and body
conditions and medical requirements vary based on many factors such as age,
gender, genetic predispositions, lifestyle factors, and pre-existing medical
conditions. The varied healthcare needs of individuals highlight the drawbacks
of using a “same size fits all approach”, to medicine classification and
control. It is crucial to customize medication plans by considering factors
such, as age, gender, genetic tendencies, lifestyle choices and existing
medical conditions to enhance treatment effectiveness reduce reactions and
prioritize patient-focused care. These differential rates for medicines create
a financial burden on vulnerable populations, including low-income individuals
and those with chronic illnesses who rely on regular medicines. This financial
strain can force individuals to forgo necessary treatments, leading to poorer
health outcomes and perpetuating cycles of poverty and ill health. An example
can be taken of a person who may be prone to Allopathic medicine and whose body
condition suits only Ayurvedic medicines in such cases the medicine that is
preferred and deemed essential for their living is Ayurvedic medicines but here
the taxing classification suggests that the Ayurvedic medicine be taxed at the
rate of 12% which is higher than the Allopathic medicine which is taxed at the
rate of 5% which is arbitrary and irrational.
Further, the medicines in the
essential category (5% tax rate ) list such as Insulin which is very important
for diabetic patients, cyclosporin and artificial kidney, COVID-19 diagnostic
kits, Coronary stent or stent systems used with cardiac catheters, and milk food
for and medicines
mentioned in non- essential medicines (12% tax rate ) lists such as Glands and other
organs used for organo-therapeutic use, Medical grade oxygen, medical grade hydrogen peroxide,
Unani, Siddha medicines
are essential for one’s survival taxing on such products with different rates imposes a burden
on people but also forces them to choose their medicines according to their
financial capacity which is violative of Article 21 of the Indian Constitution.
This flawed system hurts everyone but with unequal impact.
Access to
medicines is a non-negotiable component of the right to health. These medicines
represent the basic treatment for disease which is critical to the survival of
the population. Ethical governance demands that these medicines need to be made
available without any barrier that jeopardises the right to health.
III. RIGHT
TO HEALTH V. ETHICAL CONSIDERATION
A. Right To Access Medicine As a
Basic Human Right
At the International level, the
concept of the right to health has been recognised in various international
instruments, like Article 25(1) of the Universal Declaration of Human Rights
which says that “Everyone has the right to an adequate standard of living for
health like food, clothing, shelter, medical care, and necessary social
services for himself and of his family”[5], Article 12 of the International Covenant on Economic,
Social and Cultural Rights states that “Everyone has the
right to enjoyment of the highest attainable standard of physical and mental
health. It includes
right to access medicine under the ambit of health”[6],
Goal 3 of the SDGs aims to “ensure good health lives and well-being for
all at all ages”. Target 3.8 specifically addresses “universal health
coverage”, including access to essential medicines and vaccines, and Convention
on the Rights of the Child (CRC)[7], and
the Convention on the Rights of Persons with Disabilities (CRPD)[8]
and the Convention on the Elimination of All Forms of Discrimination against
Women (CEDAW)[9], all
touch upon the right to health which impliedly include access to medicines as
well.
In India, the concept of the right to
health is not recognised directly under the Indian constitution. The Hon’ble
Supreme Court recognised the right to access health as an integral part of the
right to life under Article 21 of the Constitution[10]. The
right to health also includes the right to access medicines as well, this has
been expansively interpreted by the judiciary to encompass the right to health
and medicine under the ambit of Art.21, thereby affirming the state’s
obligation to ensure there is access to healthcare services[11]
and also in Paschim Banga Khet Mazdoor Samity v. State of West Bengal[12]
the court held that the right to health also includes the right to access
essential medicines and treatment and in State of Punjab v.
Ram Lubhaya Bagga[13]
the court held that the government has a constitutional obligation to
provide medical assistance to those in need, irrespective of their financial
status and also National Pharmaceutical Pricing Authority (NPPA), Should
regulate the price of medicines to make them affordable and accessible to all
sections of society following guideline issued by the apex Court in Consumer
Education and Research Centre v. Union of India[14]
and also in Indian Drugs & Pharmaceuticals Ltd. v. Workmen[15],
the Supreme Court emphasized the importance of access to affordable medicines
for all sections of society and held that the pricing of essential drugs should
take into account the interests of consumers and ensure that medicines are
accessible to the general public at reasonable prices. Despite these directions
given by the judiciary to ensure the affordability of medicine, the legislature
hasn’t made any steps to make medicines affordable. In fact, the current taxing
structure of pharmaceutical drugs causes social inequity.
B. Taxing of Pharmaceutical Drugs v.
Social Equity
Social equity refers to equal and
fair share of wealth, opportunities and privileges within the society. It
entails that all individuals, regardless of their socio-economic status, and
identity have equal access to resources, rights and opportunities. To rationalize
the distribution of medicines and to regulate and to reduce the burden on the
people GST has been introduced but under the previous tax regime, some drugs
were taxed at lower percentages than the current tax system. Example to taken
of medicines that are used to treat diabetes, malaria, etc. were taxed at a
rate of 4% tax in the VAT tax regime but now these medicines/drugs are taxed at
GST of 5% and the Ayurvedic medicines are charged at 4% along with the excise
duty of 1.5% in previous VAT system but now it is taxed at the rate of 12% of
GST[16]
and pacemaker which are implanted in the chest was taxed at 4% of tax in
previous VAT tax regime but now it was taxed at the rate of 12% of GST, this
seemingly increase in tax percentage has significant repercussions for those
are struggling to afford medicines and the current classification of essential,
non-essential, life-saving drugs fails to adequately prioritize accessibility
and affordability.
The heightened tax rates for
different products such as 5% for Insulin, cyclosporin, artificial kidney and
medical oxygen, glands and organs for organo-therapeutic use were now taxed at
a 12% rate[17] which
is essential for one’s survival pose significant strain, particularly on the
vulnerable population who are marginalised or economic disadvantageous groups.
For uninsured or underinsured persons, the cost of medicine represents a
significant financial burden along with other essential expenses such as
clothing, shelter and food. As a result, this forces the individual to make
difficult trade-offs by sacrificing their health
The taxation on pharmaceutical drugs
not only affects individuals' access to essential medicines it also affects
their potential health outcomes. When pharmaceutical drugs are subjected to
tax, their cost increases and access to such medicine decreases, especially for
those from low-income backgrounds. This heightened financial burden places
significant strain on already limited resources and forces individuals and
families to make difficult decisions about prioritizing their health needs
amidst the competing financial demands. The consequences of being unable to
afford essential medications will result in chronic conditions or serious
illnesses. For a diabetic individual who is struggling to afford insulin
because of the heightened cost which is used to treat blood sugar levels cause
kidney failure, blindness or cardiovascular disease this affects their quality
of life and life expectancy.
Furthermore, taxation on
pharmaceutical drugs can widen existing health disparities. Marginalized
communities, such as socioeconomically disadvantaged groups, are already
affected by limited financial resources taxing these essential medicines
further exacerbates health inequality. The ethical framework underlying the
right to health underlines the importance of progressive realization toward the
goal of universal health coverage (UHC). While taxation is a legitimate source
of state revenue, pharmaceutical taxation can become ethically problematic if
it impedes the state's ability to move toward a model where healthcare,
including access to essential medicines, is not determined by an individual's
ability to pay.
IV.
COMPARATIVE STUDY OF INDIA AND CANADIAN GST ON TAXING OF MEDICINES
India's adoption of the GST from Canada
represents a significant milestone in its tax reform trajectory. GST was
Launched in 2017 and it has replaced many intrinsic indirect taxes, simplifying
the tax structure and fostering a unified market nationwide. This emulation was
fuelled by the success observed in countries like Canada, where the GST has
been operational since 1991.
Despite their shared adoption of the
GST framework, India and Canada diverge notably in their taxation of
pharmaceutical drugs. In India, these drugs are subject to GST rates ranging
from 5% to 18%, based on the classification. Typically, essential drugs face
lower tax rates, while non-essential or luxury drugs incur higher taxes.
Conversely, Canada adopts a contrasting approach to pharmaceutical taxation. In
Canada, the drugs were taxed either in zero-rated or subjected to 7% or 15%.
In Canada, drugs supplied which are
specified in para 12 and 13 of the Canadian GST are zero-rated and generally, it
does not need a prescription when it is supplied to a consumer. However, these
drugs can be accessed by consumers only with the prescription of a medical practitioner. Supplies of certain other drugs which
are discussed in para 12 and 13 of the regulatory schedule are also zero-rated
when supplied under the prescription of a medical practitioner[18].
This is generically known as over-the-counter drugs. These drugs are taxed at
7% or 15% when it is not prescribed by the practitioner. The supply of a
service for dispensing a drug for human use is zero-rated and also importation
of drugs which is specified under Part I of Schedule VI is zero-rated[19].
Medications that are prescribed by
doctors are generally exempt from the GST, rendering them more affordable and
accessible to the populace. This exemption underscores the vital role
prescription medications play in safeguarding public health and well-being,
reflecting Canada's commitment to ensuring healthcare access. Whereas, India
taxes pharmaceutical drugs at different tax rates such as 5%, 12%, and 18% even
though it is essential for human survival which causes a financial burden on
the people further it also imposes a duty on the medicines that are imported
from other countries which are already discussed above.
These differing tax policies on
pharmaceutical drugs underscore distinct priorities and strategies in
healthcare and taxation between India and Canada. While India seeks revenue
generation through GST on pharmaceuticals, Canada prioritizes equitable access
to essential medications by exempting them from taxation. These disparities
reflect broader distinctions in healthcare systems and social policies between
the two nations.
V.
CONCLUSION AND SUGGESTION
In the contemporary era, the
implementation of the Goods and Services Tax has unquestionably marked a
notable advancement in simplifying taxation systems and promoting economic
growth. Despite these initiatives, the taxing of pharmaceutical drugs
especially essential medicines, undermines the fundamental right to health as
guaranteed by the Indian Constitution. While state revenue is crucial, current
policies prioritize short-term gains over the long-term welfare of the
population.
The introduction of GST on
pharmaceutical drugs deviates from the fundamental principles of fairness and
social equity that are central to healthcare systems globally. By imposing a
tax on the medicines that are mentioned by the WHO as essential medicines for
human survival under a 5% and 12% tax rate, governments inadvertently create
financial barriers that hinder healthcare access, particularly for those most
in need. High taxes on pharmaceuticals worsen existing obstacles to healthcare
access, hitting vulnerable groups like the uninsured, underinsured, and
marginalized communities the hardest. These individuals already struggle to
access vital healthcare services and added taxation further restricts their
ability to obtain necessary medications. Consequently, many are left with
agonizing choices between addressing health needs and covering other essential
expenses, perpetuating cycles of illness and financial strain. For marginalized
and economically disadvantaged communities, pharmaceutical taxes have tangible
consequences: they must decide between buying life-saving medications and
fulfilling basic needs like food, shelter, or education.
Additionally, the regressive nature
of pharmaceutical taxation worsens current inequalities, hitting hardest those
who are already marginalized or living below the poverty line. For these
individuals, affordable medications aren't just convenient but essential for
maintaining health, managing chronic conditions, and ensuring a basic standard
of well-being. Taxing pharmaceutical drugs only amplifies their socio-economic
struggles, perpetuating cycles of illness, poverty, and social exclusion. The
ethical obligations stemming from the right to health necessitate immediate
reform. Policymakers must adopt a comprehensive approach that ensures
life-saving medicines remain affordable while still generating necessary
revenue. Some of the suggestions are as follows:
1.
Exempt
Medicine from Taxation: Governments may consider exempting both essential and
non-essential medicine from taxation which are specified by the WHO as
essential medicines entirely or introduce the same method by which GST has been
imposed on pharmaceutical drugs in Canada. This measure ensures the
affordability of medicines which are essential for survival, irrespective of
socio-economic status, thereby easing financial burdens on the poor and
marginalized and promoting equitable healthcare access.
2.
Implement
Reduced Tax Rates: Alternatively, governments could also explore implementing
lower tax rates such as 1% or 2% specifically for pharmaceutical drugs,
particularly essential medicines. This strategy aims to make medicines more
accessible to vulnerable populations while still generating revenue for public
health initiatives, striking a balance between fiscal concerns and healthcare
accessibility.
3.
Subsidize
Medication Costs: Governments can introduce subsidy programs to alleviate
medication expenses for low-income individuals and marginalized communities.
These subsidies could be in the form of direct financial assistance or
redeemable schemes for both essential and non-essential medications, ensuring
that financial constraints do not hinder access to vital drugs.
4.
Facilitate
International Cooperation: Collaboration with international organizations and
pharmaceutical manufacturers can enable governments to negotiate reduced prices
for medications. Through collective bargaining and bulk purchase agreements,
governments can secure more favourable pricing, ultimately lowering costs for
healthcare systems and consumers alike.
5.
Promote
Research and Development of Affordable Medications: Governments can incentivize
pharmaceutical companies to focus on developing cost-effective treatments for
prevalent health conditions. By offering grants, tax incentives, and regulatory
support, governments can encourage the production of affordable medications,
reducing reliance on expensive proprietary drugs and expanding access to
affordable healthcare options.
[1] Goods and Services Tax Council. https://gstcouncil.gov.in/
(last visited on 25-02-2024).
[2] Central Board of Indirect Taxes
and Customs, https://cbic-gst.gov.in/gst-goods-services-rates.html (last
visited on 21-02-2024)
[3] Sitanshu Sekhar Kar, Concept of
Essential Medicines and Rational Use in Public Health, 35 Indian J.
Community Med. Jan (2010), https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2888334/.
[4] World Health Organization, World
Health Organization Essential Medicines List (23rd Adult List),
WHO-MHP-HPS-EML-2023.02 (March 2023), https://www.who.int/publications/i/item/WHO-MHP-HPS-EML-2023.02.
[5] Universal Declaration of Human
Rights,1948, Article 25(1)
[6] International Covenant on
Economic, Social and Cultural Rights,1966, Article 12
[7] Convention on Rights of the Child,
1989, Article 24
[8] Convention on the Rights of
Persons with Disabilities, 2006, Article 25
[9] Convention on the Elimination of
Discrimination against Women, 1979, Article 12
[10] Cr. A. No. 1444 of 2013.
[11] [1980] 2 SCR 557
[13] 1998 (4) SCC 117
[14] [1984] 3 SCC 161
[15] 2007 (1) SCC 4
[16] CreditMantri. GST on Medicines. https://www.creditmantri.com/gst-on-medicines/.
Accessed on 24-02-2024.
[17] SAG Infotech Blog https://blog.saginfotech.com/gst-impact-healthcare-industry-india
Accessed on 24-02-2024.
[18] Canada Revenue Agency, Drugs
and Biologicals, CRA Pub. 4-1 (Feb. 21, 2023), https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/4-1/drugs-biologicals.html.
[19] Supra 18
Article Information
TAXATION OF PHARMACEUTICAL DRUGS: A BARRIER TO HEALTH AND WELL-BEING
Authors: RAGHUNATH M.
- Journal IJLRA
- ISSN 2582-6433
- Published 2024/03/01
- Issue 7
About Journal
International Journal for Legal Research and Analysis
- Abbreviation IJLRA
- ISSN 2582-6433
- Access Open Access
- License CC 4.0
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