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Global med-tech majors seek custom duty cut to prevent smuggling of medical devices

Medical technology companies said India's high customs duties have not only caused adverse impact on the costs of products in the country, but also increased the risk of smuggling such goods

twitter-logoJoe C Mathew | January 8, 2020 | Updated 22:48 IST
Global med-tech majors seek custom duty cut to prevent smuggling of medical devices
Global medical technology players want ta and duty structure for low volume, high value devices to be streamlined in Budget 2020-21 (Representative image)

Medical Technology Association of India (MTaI), an industry group that represents global medical technology majors, has sought to reduce the difference between the custom duties on high tech medical equipment levied by India and neighbouring countries to avoid possibility of smuggling of low volume, high value devices into the country.

The association said India's high customs duties have not only caused adverse impact on the costs of products in the country, but also increased the risk of smuggling such goods from countries such as Nepal, Bangladesh, Sri Lanka and Bhutan where duties are low.  According to MTaI, orthopaedic appliances and artificial implants carry 8.25 per cent effective import duty in India while it is nil in Sri Lanka, Bhutan and Nepal. The product category carries duty ranging between 0-5 per cent in Bangladesh. Similarly, surgical instruments and appliances can be imported at zero duty in Sri Lanka, Bhutan and Bangladesh while India levies 8.25 per cent effective duty. In Nepal, this category attracts 5 per cent duty.

The association wants the government to streamline such tax and duty structure differences in Union Budget 2020-21 to ensure people get long-term access to quality medical devices.

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"High customs duties have adversely impacted the costs of the medical devices and equipment in India which contradicts the government's efforts to provide low cost healthcare available to masses through programs such as the Ayushman Bharat Pradhan Mantri Jan Arogya Yojana (AB-PMJAY). This is particularly concerning since more than 70 per cent of the demand for medical devices is being met by global innovators," said Sanjay Bhutani, Director, MTaI.

According to MTaI, high customs duties have adversely impacted the costs of products in India that contradict the government's efforts to provide low cost healthcare available to masses through AB-PMJAY. "We seek reduction of customs duties (at the minimum, bring down to 2.5 per cent) at the earliest to affect the margins lost due to currency depreciation. The rupee depreciation, combined with the high customs duty rate has already increased the cost to the patients, making it harder for them to have access to quality medical devices.

Additionally, since the custom duty regime on most medical devices in neighbouring countries of Nepal, Bangladesh, Sri-Lanka, and Bhutan is lower than in India, the duty differential could lead to smuggling of low-bulk-high-value devices. The result will not only be loss of revenue for the government but also the patient will be beset with products which are not backed by adequate legal and service guarantees," they stated.

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"The recently hiked customs duties on IVDs (from 10 per cent to 30 per cent) that are imported from USA is also likely to have an impact on accessibility and affordability of diagnostics services in India. India imports 60 per cent of its diagnostics, most of which include tech intensive testing methodologies such as molecular testing etc. which serve the priority diseases like HIV, Hepatitis, Cancer markers, among others and are not domestically produced.  Increasing customs duty of such preventive tests for critical diseases such as cancer and HIV will severely affect the accessibility to affordable healthcare," MTaI said.

The association proposed that GST should not be charged on free goods and samples of healthcare products as it is needed to promote expansion of healthcare sector through reduced costs improving patient accessibility. "GST on medical devices is taxed at 12 per cent; it should be brought at par with preferential products and taxed at lower rate of 5 per cent. Spare parts to be used for medical equipment should be charged at the same rate of customs duty and GST," they said.

Tax holiday to medical device R&D centres under the Transfer Pricing Act to boost investment in setting up in-house R&D capabilities, tax incentives for the industry for developing global patents from India and tax deduction on income made by individuals or a company for rewards earned on patent development or patent licensing were other suggestions made by the association.

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