We have all heard about the saying, “health is wealth”. The year 2020 gave a larger meaning to it. When the entire world was locked down, the focus was only to preserve health and fight the Covid-19 pandemic. In this fight, the healthcare sector emerged as the frontline warrior and its importance has since been universally recognised. As the countdown to one of the most important Budgets in Indian history has begun, the healthcare sector deserves rewards for its immense contribution in mitigating this unprecedented health crisis.
While the need to scale up healthcare facilities and reduce dependency on imports has become a global theme, the government of India has already introduced a production-linked incentive scheme to promote local manufacturing of critical Key Starting Materials (KSMs), Drug Intermediaries (DIs), Active Pharmaceutical Ingredients (APIs), and the scheme on promotion of bulk drug parks. There is still a long road ahead as the world seeks a dynamic supply chain to reduce dependency on select partners.
Incentives such as cheap land, power, and related facilities coupled with benefit of contract manufacturing and contract R&D in the proposed business parks can play a major role to lower production cost and increase competitiveness.
With regard to public spending on health expenditure, the total expenditure by the centre and the states for FY 20 was 1.29% of GDP; in order to achieve the targeted spend of 2.5% of GDP by 2025, as per the National Health Policy, 2017, an increase in public spending on healthcare is vital.
The need for healthcare facilities and infrastructure has been felt during these unprecedented times and, thus, there are expectations to increase spending on healthcare infrastructure and develop hospitals in tier 2, tier 3 cities, and in rural areas, leading to an increase in the provider base for the government’s flagship scheme “Ayushman Bharat” as well. This could be achieved by way of subsidised loans, lands, providing viability gap funding, and setting-up of specialised infrastructure development funds. Increased public spending would also help lower India’s out-of-pocket expenditure on health which is nearly 63% of total spending on health.
R&D, being a crucial factor, must also be promoted by the government to gain a cutting edge. Setting up of specialised innovation funds would ensure greater access to capital for the Industry. In the same context, tax incentives such as gift city, SEZ, relaxations in existing patent box regimes as per section 115BBF of the Income-tax Act, 1961 (ITA) to allow application of reduced tax rate even to assignees / transferees of the patent, introducing reduced tax regime on commercialisation of patents and treating contract R&D activities on prototypes and semi developed tech samples from abroad as export of services under GST, is recommended to incentivise investments and attract FDI into contract R&D.
The need for healthcare facilities and infrastructure has been felt during these unprecedented times and, thus, there are expectations to increase spending on healthcare infrastructure and develop hospitals in tier 2, tier 3 cities, and in rural areas, leading to an increase in the provider base for the government’s flagship scheme “Ayushman Bharat” as well.
On the taxation front, following direct and indirect tax incentives may also be considered keeping in mind the above-mentioned discussions:
1. Extend tax benefits under Sec 35AD (100% deduction on capital expenditure) to all hospitals instead of hospitals having minimum capacity of 100 beds.
2. Allowing weighted deduction for capex incurred for fighting Covid-19 pandemic (CT scans, laboratory apparatus, ventilators, setting up ICUs etc.)
3. Providing weighted deduction of expenses incurred on skill development in the healthcare sector, which will also help to address the shortage in doctor-population ratio which currently is 1:1456 against the WHO recommendation of 1:1000.
4. Promoting health insurance for individuals by enhancing the quantum of deduction towards medical insurance premium payment under section 80D of the ITA.
5. Improved focus on preventive health by enhancing exemption for preventive health checks, from the current ₹5,000 under section 80D of the ITA.
6. Improving affordability of healthcare care services by reducing GST on medical devices and making 'zero rating' of GST for healthcare services and life-saving drugs.
7. Relaxing the time limit under GST law to adjust the tax liability of credit notes, in case of expired medicines, which is currently until September of the next financial year in which the supply was made. Alternatively, it may be clarified that the relevant rule will not require reversal of input tax credit for products consumed by healthcare industry.
As the unprecedented times requires unprecedented measures, reward and recognition for healthcare industry in the upcoming budget would be much valued and shape the road to India’s growth story in this new post-Covid-19 era.
Views are personal. Ray is a Partner with Deloitte India. Arora and Chaturvedi are Senior Manager and Deputy Manager with Deloitte Haskins and Sells LLP.
