Shuchi Ray, Partner and Indu Amar, Director, Deloitte Haskins & Sells LLP talks about budget 2022
A well-structured and forward looking budget encompassing all sectors lays down a strong foundation for “India at 100”, which is the next milestone for the country that has entered the 75th year since Independence. The pharmaceutical and healthcare industry has been lauded for its contributions, especially for the speed and coverage of vaccination and improvement in health infrastructure. A digital and capex-led Budget will surely be instrumental in creating a stronger and Aatmanirbhar India.
The Economic Survey 2020-21 had noted that the ongoing pandemic has helped showcase the role of technology-enabled platforms as an alternate channel for remote delivery of healthcare services. Given India’s unique last mile challenges, it was recognised that such technology-enabled solutions need to be harnessed to the fullest. By following the technological footprints, the roll out of an open platform for the National Digital Health Ecosystem has been announced under Ayushman Bharat Digital Mission, that will consist of digital registries of health providers and health facilities, unique health identity and universal access to health facilities and consent framework, which will make access to health and wellness more equitable.
The Budget also acknowledged the adverse impact that the pandemic has had on the mental health of people across ages. To address the same, a National Tele Mental Health program is proposed to be launched to provide better access to quality mental health counseling and care services. This move, which is expected to include a network of 23 tele mental health centres of excellence under the support and guidance of National Institute of Mental Health and Neuro Sciences and IIIT Bangalore, is very welcome.
Moving towards total healthcare expenditure, last year’s Union Budget had seen substantial budgetary allocations to healthcare sector. As the industry is poised for growth, it was hoped that the sector would continue to be encouraged with higher allocations. However, the allocation to the sector is low. In the last two years, the healthcare budget seemed decent due to significant outlay for Covid. Since Covid allocations were one-off, the current budget allocation to healthcare in terms of percentage to GDP is almost similar to pre Covid levels. It is expected that in future, allocation to healthcare sector will only move upwards. Further, health cess should be used to enhance existing spending.
Finance Minister Nirmala Sitharaman in her Budget speech mentioned that genomics and pharmaceuticals will get supportive policies, light-touch regulations, facilitative actions to build domestic capacities, and promotion of research and development. The requirement collaboration among academia, industry and public was well recognised and it has been proposed that government contribution will be provided for R&D in sunshine opportunities. However, there are no incentives proposed in tax proposals. The same could be on account of upcoming R&D policy (draft was issued recently in November 2021). With the vision of creating India as an innovation hub, it is expected that incentives towards R&D are introduced as part of certain schemes, that encourage the capable and committed pharmaceutical industry to invest in R&D.
The tax proposals further provide for disallowance of some expenses incurred by pharmaceutical companies towards travel, hospitality, etc. of medical practitioners to the extent they are considered to be in violation of any law / regulations governing the conduct of the recipients. This coupled with new withholding provisions relating to benefit have prompted pharma companies to evaluate their marketing and related spends with a view to analysing the potential tax impact.
From an indirect tax perspective, the proposals under Customs are aimed at domestic capacity creation and for a level playing field for domestic manufacturers of certain medical devices and drugs/medicines, while considering the objective of PLI schemes and the existing dependence on imports for APIs and bulk drugs, viz. BCD rate on following goods is increased:
- X-ray machines/ Specified parts of X-ray machines – 7.5 per cent/ 5 per cent (till 31 March 2022); 10 per cent (from 1 April 2022)
- Artificial kidney and disposable sterilised dialyser and related and raw materials, parts or accessories – NIL (till 1 Feb 2022); As per tariff (from 2 Feb 2022)
- Specified goods for use in pharmaceutical and bio-technology sector imported for R&D use; and specified drugs and medicines supplied free of cost to patients under PAP (Patient Assistance Program) – sunset date of 01 April 2023 has been stipulated in the existing relevant exemption notifications providing concessional rate benefit to these goods.
- Certain drugs (including lifesaving drugs), medicines, diagnostic kits or equipment and Bulk drugs used in the manufacture of drugs or medicines – Existing concessional BCD/ Nil BCD applicable on these items have been rationalized, and now, such drugs/medicines attract increased BCD rate as per tariff effective from 2 February 2022 (1 October 2023 for influenza vaccine).
On the other side, exemption has been granted to drugs or medicines, which are used for the treatment of rare diseases, when imported by the specified 8 Centres of Excellence (CoE) or any other person/institution on recommendation. This is in tune with the National Policy for Rare Diseases, 2021.
From a tax perspective, the healthcare sector expected crucial reforms to encourage ‘Make in India’ efforts for affordable healthcare. Amongst others, from a GST perspective, expectations relating to zero-rating of GST for health care services, lower tax incidence on life-saving drugs, GST credit on expired drugs have remained unattended in this Budget. Further, announcement of a scheme like Research-Linked Incentive Scheme to accelerate an ecosystem for end-to-end development of pharmaceuticals – from bulk drugs to finished formulations, could have helped the sector contribute to the objective of self-reliant India. We hope the same will be addressed soon.
With advancement of digitalisations in healthcare, there are significant opportunities to revolutionise healthcare with innovation and technology. Healthcare experts will also be expected to utilise innovations to stay updated and relevant. With digital health ecosystem expected to cover even remote areas, and enhanced budget allocation to the sector, “India at 100” will have a stronger healthcare system and be a healthier India.