The ongoing pandemic has established, beyond doubt, that a robust health care system is a crucial pillar in any country's growth journey. Against this background, the expectations of the healthcare sector from the upcoming Budget, even if slightly ambitious, can only be considered as fair and reasonable. The sector hopes that the government would announce proposals to further scale up healthcare facilities, increase public spending in healthcare sector to achieve the objective of providing affordable healthcare services and focus on strengthening three areas - prevention, cure, and well-being.
This year, the foremost expectation from the Budget is increased allocation on public spending on healthcare, by introducing new incentives and schemes for building healthcare infrastructure through innovative technologies. Covid-19 has emphasised the need for advanced healthcare facilities throughout the country, and therefore it is expected that the government will introduce schemes for providing subsidized loans and land for setting up advanced hospitals, especially in Tier-2 and Tier-3 cities, including rural areas.
A number of steps taken by the government in the recent past clearly demonstrate the focus of the government towards building a sustainable healthcare infrastructure. Introduction of schemes with production-linked incentives (PLI) and Promotion of Medical Devices Parks Schemes under the theme of 'Atmanirbhar Bharat', announcement of the Ayushman Bharat Digital Mission (ABDM) and Promotion of bulk drug parks are all testimonies to this. Continuing with this focus, the sector's key expectations, especially on the tax front are as follows:
- Zero-rating of GST for healthcare services: Healthcare services (barring a few exceptions) are currently exempt from GST that leads to all procurement taxes forming a significant part of operational costs. A zero-rating status to healthcare sector is the need of the hour and, will achieve the twin objectives of keeping the credit chain intact and reducing the cost of healthcare services. Refund of procurement taxes will enable health care service providers to pass on the benefit in terms of affordable healthcare services.
- Lower tax incidence on life-saving drugs: Bring more life-saving drugs at the lowest rate of GST and Customs duties to achieve patient affordability.
- Another aspect vis-à-vis GST is the tax credit on expired goods. The expiry of medicines ranges from 2-3 years from the date of manufacture. Since, medical best practices require the manufacturer / distributor etc. to safely dispose off expired goods, at times, they have to take back expired items from trade channels. It is recommended that the time limit prescribed under law, to adjust the tax liability of credit notes only until September of the next financial year in which the supply was made, may be relaxed in case of expired medicines which are returned to the manufacturer/ wholesale dealer.
- High treatment cost and Covid-19 impact on low-income groups, there is an expectation to enhance Ayushman Bharat's package rates. Simultaneously there is a need to incentivize investors who set up hospitals in smaller cities to increase the provider base for Ayushman Bharat, by way of re-introducing tax holidays similar to that existed earlier for rural hospitals with a flexibility of selecting the beneficial years.
- Although, GoI has slashed corporate tax rates to 22 / 15 per cent, respectively, they have also progressively phased out all tax incentives including R&D deductions. Recently, the Parliamentary Standing Committee on Commerce has emphasized on the importance of restoring the weighted deduction for R&D. The DPIIT too has recently said that a report on the same has been submitted to the Ministry for consideration in the upcoming Budget.
- The draft R&D policy focusses on creating an ecosystem for innovation and research and for certain tax incentives for investment in 'R&D focused funds'.
- Investment is also warranted from the R&D perspective which calls for collaboration of private sector players with academia, scientific experts, and governments to undertake drug discovery and advanced medical technologies. The government should provide requisite incentives to promote and develop this public-private collaboration to make India an innovation hub.
- IP laws can be strengthened and existing patent box regime expanded to cover assignees / transferees of patents, instead of restricting it to only the true and first inventor. Reduced tax regime can be offered upon commercialisation of the patents anywhere across the globe.
Recognising the immense contribution of the healthcare sector during these difficult times, it would be interesting to witness what the government plans to serve for the sector this year.
Views are personal. Ray is partner, Deloitte India; Arora is partner, Deloitte Haskins & Sells LLP
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