Budget Expectations 2018

Experts from healthcare sector share their recommendations for the upcoming budget 2018

Mandatory health insurance, insurance coverage for elderly, priority sector status, creation of health infrastructure and innovation funds, promotion of medical tourism, CSR incentives along with other tax related reliefs and exemptions prominently figures in the pre-budget recommendations submitted to the government by Healthcare Federation of India (NATHEALTH).

To ensure universal healthcare access and augment healthcare and infrastructure capacity, NATHEALTH has emphasised on introduction of mandatory health insurance. Currently, only around 4 per cent of the population in the country have health insurance coverage. Out of pocket healthcare spending constitutes 86 per cent of total healthcare spends in India. Further, a vast majority of the rural poor are unable to access quality healthcare.

“The major reason for the low penetration of health insurance is that it is currently optional. It is also the case that most of the people opting for health insurance have some pre-existing illnesses. This has led to a high claims ratio being prevalent in the health insurance business which makes it difficult for health insurers to sustain their operations,” said Dr Arvind Lal, President, NATHEALTH.

While appreciating the government’s efforts to introduce a health insurance scheme for economically weaker sections of the society and senior citizens in the last budget, NATHEALTH recommended that the government could also explore making health insurance coverage mandatory for all citizens in a phased manner, initially covering the organised sector.

“Apart from enabling universal access to healthcare, this move would also meet the urgent need for augmenting healthcare capacity creation in the country,” Dr Lal added.

NATHEALTH also recommended increase in quantum of deduction towards payment of medical insurance premium as it considers the present annual deduction limit of Rs 15,000 inadequate to push health insurance schemes. Accordingly, it should be enhanced to Rs 50,000 for self and family and the current annual limit of Rs 20,000 in respect of dependent parents needs to be enhanced to Rs 50,000.

The Federation also emphasised that there is an urgent need for setting up a Health Infrastructure Fund and A Medical Innovation Fund.

“The Government can think of providing the seed capital for funds such as Health Infrastructure Fund and Medical Innovation Fund. Access to funding by creating a specific fund for healthcare infrastructure and innovation would facilitate access to capital for the sector,” said Anjan Bose, Secretary General, NATHEALTH.

“These funds would encourage entrepreneurship and newer business models which are the need of the hour for improving access, availability and quality, especially in Tier 2, Tier 3 and rural areas,” Bose added.

NATHEALTH also recommends that healthcare should be given priority sector status. Though healthcare was included in the harmonized master list of infrastructure sub sectors by the Reserve Bank of India in 2012, long term financing options are still not available for healthcare providers.

According to NATHEALTH, Priority Sector status to healthcare will help in the process of enabling development of innovative long term financing structures for healthcare providers apart from creating an attractive environment for domestic production of medical equipment, devices and consumables while also catalysing research and development. NATHEALTH feels that this will channelise funds from the banking sector to create necessary healthcare infrastructure and meet societal objectives of the Government of India.

In order to make India a preferred healthcare tourism destination by ensuring a level playing field with other Asian healthcare nations, and earn valuable foreign exchange, NATHEALTH also suggested that earnings from Medical Tourism should be made fully exempt from income tax for healthcare providers.

Other Recommendations from NATHEALTH:

  • Need for extending the 150 per cent weighted deduction scheme under section 35AD of the Income Tax Act, 1961 for another five years up-to 2022
  • Provide import duty relief in respect of lifesaving equipment, not manufactured in India and enable a robust regulatory framework for domestically manufactured medical devices.
  • Further simplification of the tax regime in respect of Real Estate Investment Trusts (REITs)/ Business Trust
  • Need for a liberalised FDI regime in respect of investments relating to medical education
  • Exempting the healthcare sector from the Minimum Alternate Tax (MAT) regime under the Income Tax Act
  • Lowering of Corporate Tax rates as announced in the Union Budget 2014-15
  • Abolishment of Dividend Distribution
  • Need for revision in the Service Exports from India Scheme (SEIS) Reward Rate
  • Extension of duration of the Tax Holiday scheme from 5 years to 10 years for new hospitals to ensure viability
  • Enhancement in medical reimbursement exemption limit for salaried employees  to Rs 1 lakh per annum in line with cost inflation index
  • Introduction of a separate deduction in respect of preventive health checks
  • Introduction of a deduction for investment into long term bonds with a minimum tenor of ten years issued for setting up hospitals with at least 100 beds
  • Allow Corporate Social Responsibility (CSR) spends as tax deductible business expenditure

Dr Arvind Lal, President, NATHEALTH and Anjan Bose, Secretary General, NATHEALTH

This year has been an important one for healthcare. Various initiatives ruled under the National Health Policy have helped in larger strata of the Indian population to access medical services at affordable prices. Post introduction of GST, the tax rate on medical devices was pegged at 12 per cent, this, if reduced further can positively affect the overall cost structure thereby providing cost effective healthcare services to the society. The last budget had a lot of focus on policy direction and targets for elimination of chronic diseases which is laudable. In addition to increased spending, we also hope that this year’s budget with address the National Health Protection Scheme and also set impetus to generate demand for health insurance through additional exemptions.

Ameera Shah, MD & Promoter, Metropolis Healthcare

Public sector investment on healthcare accounts for less than 1.5 per cent of GDP, which is one of the lowest globally, and the government intends to increase the expenditure to 2.5 per cent of GDP by 2025. The outlay on healthcare increased by a healthy 28 per cent in budget for the financial year 2017-18 and the allocation is likely to see similar increase in the forthcoming budget as well.

In line with National Health Policy (NHP) 2017, the expenditure is likely to be directed towards setting up of new hospitals to increase the number of beds in the country, for transformation of existing district and town level health centers to provide better healthcare facilities across geographies while using the existing infrastructure. The budget is also likely to increase the allocation for addressing the increasing burden of non-communicable diseases (NCDs) such as diabetes, cardiovascular diseases, hypertension etc and to increase the outlay for providing free drugs, diagnostics and emergency services across all public hospitals, in line with NHP 2017.

Public sector accounts for only 30 per cent of the total healthcare expenditure in the country, as compared to 42-58 per cent in Brazil, 58 per cent in China, 52 per cent in Russia, 50 per cent in South Africa, 48 per cent in the US and 83 per cent in UK (Source: WHO). ICRA believes that investing in building and maintaining public health infrastructure should be given priority in the budget as these facilities are lagging and vast majority of the population has to incur out of pocket expenditure on healthcare due to low penetration of health insurance. Alongwith the setting up of new hospitals, medical colleges and nursing academies are also required to be set up in order to address the shortage of beds and skilled medical professionals in the country.

Given the paucity of beds in the country, higher tax incentives for private sector investments in modernising medical facilities and developing green field hospitals will be a welcome step. New infrastructure developed through incentives can also be utilised for catering to the growing medical tourism in the country, which is expected to continue to grow by 20 per cent over the next five years generating export revenues and employment.

Shubham Jain, Vice President and Sector Head- Corporate ratings, ICRA Limited

It is expected that health will gain more importance this time. Presently, the public health expenditure is around 0.3 per cent of GDP, with the rest being out of pocket spending on healthcare. There is dire need for this scenario to change. Although government has the objective of increasing public expenditure to 2.5 per cent of GDP over a period of time, but this needs to be achieved sooner than later. Primary health centers and community health centres are underperforming. The number of these centers need to be increased and existing centres need to be upgraded with staff and service both. In addition, we are hoping for policies and allocation which will further engage tertiary care providers in more places and enabling opening of more facilities. Private and public partnership is essential for healthcare penetration in the interiors of India, especially for tertiary care.

Kamal Solanki, CEO, Venkateshwar Hospitals & Chairman, Venkateshwar Group of Schools, New Delhi

The total healthcare spending of India is one of the lowest in the world and lagging behind the GDP growth, India spends only 3.4 per cent of the total spending as compared to the budgets of other nations like the US, Canada, New Zealand, Australia etc. who spend more then 17 per cent. The basic expectation from this budget will be to see an increased spending on the healthcare sector, in order to make available the basic healthcare infrastructure and affordable healthcare for all. There is a huge unmet need for healthcare infrastructure and professionals in the nation that needs to be addressed by providing right quality healthcare with trained professionals to improve the healthcare indicators. The trends in diseases are changing as well, more and more deaths in India are happening because of non-communicable or lifestyle associated diseases, provisions and policies to spread awareness on the importance of prevention and how to mitigate these diseases should be considered.

Where most of the renowned doctors in various other countries are of Indian origin, India is not considered to be a leading hub for healthcare, efforts need to be focussed in making India a hub of excellence for healthcare services by increasing spending on technology and infrastructure. Increase in tax incentives for research in healthcare could help achieve the same and further support the Made in India initiative of Government of India as well.

Initiatives to encourage improvement of healthcare availability in under-served areas would also help bridge the rural-urban disparity. The government can look into providing more incentives to individuals and organisations that strive hard to improve rural health.

Tax incentives should be given for setting up new hospitals. Incentives for domestic manufacturing of medical devices and consumables should also be considered in the budget this year. The progress on improving the condition of women and children is really slow, the under five mortality and maternal mortality rates are still on higher side, increased spending’s on nutrition, drinking water coverage, sanitation, female secondary school enrollment should be undertaken.

Incentives for emerging sectors like health insurance and medical tourism can benefit the industry; also the government should focus on an affordable health for all policy by providing a social insurance scheme benefiting every individual of our nation.

Dr Minnie Bodhanwala, CEO, Wadia Hospitals

As medical inflation is growing at 18-20 per cent per annum, the healthcare expenses of the average household are easily exceeding the medical allowance limit of ₹15,000 per year. In order to align with inflation and increasing cost of living, the government should not only further rationalise the personal taxation limit significantly, but also hike medical reimbursements limit, from its current yearly slab of ₹15,000 for salaried employees.

Narendra Modi, Prime Minister had always stressed on ensuring affordable health care, with increased indigenisation of resources. However, a wide gap exists in local manufacturing of high-quality medical devices and this is especially important in view of the fact that a significant 70 per cent of healthcare spends is through private spending. Make in India slogan can be successfully implemented into reality, only if the government provides sufficient level playing ground for the indigenous players to perform, coupled with varieties of incentives.

The Indian medical devices market size is of ₹24,000 crore, with a compounded annual growth rate of 15 per cent, but around 75 percent of the demand is met through imports, while the nascent domestic industry predominantly manufactures low-risk products. The growth of medical device industry is hampered by lack of adequate testing support for regulatory compliance, limited availability of manpower, lack of adequate industrial R&D, high cost and inaccessibility of imported technology. Public-funded institutions need to take up the role of catalyst and facilitator, for increasing the share of indigenous manufacturing of medical devices and equipment from the current 25 per cent.

Medical Technology Association of India has urged the government to provide a tax holiday to medical device R&D centers, under the transfer pricing act to boost investment in innovation based in-house capabilities. Association have also demanded 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 licensing of patents. Association also further requested that Safe Harbour guidelines be provided for pharmaceutical companies which are manufacturing and exporting the product as contract manufacturer, under loan licensee.

FDI policy on Pharmaceuticals sector inter-alia provides that definition of medical device as contained in the FDI Policy would be subject to amendment in the Drugs and Cosmetics Act. As the definition, as contained in the policy is complete in itself, it has been decided to drop the reference to Drugs and Cosmetics Act from FDI policy. Further, it has also been decided to amend the definition of ‘medical devices’ as contained in the FDI Policy.

Khushroo A Pastakia, CEO & MD, Voxtur Bio

We sincerely hope healthcare industry would be given some leeway in terms of GST implementation. This will ensure better services to patients by healthcare providers. This will also result in greater accessibility of care and services by the common man. The government must also come out with clear roadmap to make medical insurance more popular. It must also exclude the medical insurance premium exempt from GST. Given the acute shortage of manpower, there is need to industry representation in central universities and even medical colleges so that healthcare industry can source talent appropriately.

Dr Dharminder Nagar, MD, Paras Healthcare

We feel that the budget should focus on allocation of resources and adequate funds for skill upgradation of not only doctors but also nurses too. There is also a need to introduce new innovations in the home healthcare segment, and encourage the availability of care at home, thus freeing up hospital beds and helping patients recover at their homes at a lower cost. We feel that the government needs to have initiatives in place to spread awareness about healthcare, especially geriatric care, in semi-urban and rural areas as this is developing to be a highly needed service with the changing demographics and disease patterns. There are growing concerns about increase in non-communicable diseases such as cancer, heart related ailments, diabetes among others and we expect that government will focus on addressing these diseases.

Dr. Anitha Arockiasamy, President, India Home Health Care

Medical Technology Association of India

Direct Taxes

Reduction in income tax rates: Considering that the weighted deductions and tax holidays are being phased out, the corporate tax rates should also be reduced for large companies in line with government’s objective to widen the tax base and make these companies globally competitive. The rate of 25 per cent should be made applicable to all companies willing to forego tax incentives

Reduction in Minimum Alternative Tax (MAT) rate: Presently the effective rate of MAT is 21.34 per cent (including surcharge and education cess). The high rate of MAT has casted substantial burden on companies which are already affected by various external factors and global turmoil. It is most desirable that it should be restored to 12.5 per cent which is about 50 per cent of the basic corporate tax rate (As the effective tax rate would be brought down to 25 per cent)

Rationalisation of Dividend Distribution Tax (‘DDT’) Scheme: It is recommended that to abolish the additional income tax in the form of DDT. Alternatively, DDT rate is recommended to be reduced to 10 per cent from the current effective rate of 20 per cent (after including education cess, surcharge and grossing up of DDT).

Carry backward of Business Losses: It is suggested that similar provisions as carry forward of the business losses, be introduced to allow carry back of losses at least up to three years period.

Specific Provisions for Employee Stock Option Plan (‘ESOP’) expenses: ESOP expenses debited to profit and loss account by the assessee in compliance with applicable GAAP shall be allowed as a deduction, as also postpone the incidence of taxability of shares from the date on which the shares are exercised to the date on which the individual becomes absolute owner of the shares.

Deduction/ Partial Deduction for Corporate Social Responsibility (‘CSR’) expenditure: A deduction of the expenditure on community/ social development (both capital and revenue) be introduced, covering critical focus areas for CSR such as education, health, women empowerment,etc.

Employees’ contribution to Provident Fund: It is recommended that suitable amendment should be made in the Act so as to bring the provisions relating to the Employees’ contribution towards employee welfare funds in line with the employer’s contribution towards such funds.

Relaxation in Rule 6DD for payment of more than Rs 10,000 in cash in foreign country: It is recommended that suitable relaxation may be provided in Rule 6DD where cash exceeding Rs 10,000 is used in foreign country by employees on behalf of the company having regard to various factors such as high cost of living, risk of online fraud etc.

Disallowance of expenditure for non-deduction of tax from payment to non-residents: It is recommended that section 40(a)(i) of the Act should also be amended restricting the disallowance to 30 per cent of the amount of expenditure paid/ payable to non-residents on which no taxes have been withheld at source (presently 100 per c is disallowed) and a provision similar to the second proviso to section 40(a) (ia) should be made applicable for payments to non-residents where the resident payee has remitted appropriate taxes and is not regarded as an assessee in default.

Export incentive: Currently, there are no tax benefits on export income. Export being a growth engine for the economy it is important that efforts should be made to make it competitive in the international market.

Intra Group Service charges: Application of ‘benefit test’ in relation to these intra group charges is very subjective and can prone to different arm’s length result. Hence, it is necessary that specific guidelines be issued including ‘Safe Harbour’ to provide certainty in this area of growing litigation

Indirect Tax

High Custom duties on Medical devices: We strongly recommend restore the import duty rates on medical devices to earlier rate of 5 per cent import duty (BCD)

Higher GST rate on Medical Devices: We have raised the issue of high GST rates being prescribed on Medical devices. For example, we would like to highlight in particular that the 12 per cent GST as applicable on products under HSN code 9021 (which attracted nil rate of CVD) is very high compared to current embedded tax cost that comes to 6-6.5 per cent under VAT regime. We recommend that all Medical Devices should be brought under concessional GST rate of 5 per cent, to lower the cost of healthcare for end patient.

Higher GST on Contact Lenses & Lenscare: In the case of Contact Lens (HSN 9001) where the embedded tax rate under erstwhile VAT regimes was approximately 8.8 per cent, the GST rate has been prescribed at 12 per cent, causing hardships to consumers as the industry is still at a very nascent stage. Further, the Lenscare solution which is a product that is used only for disinfecting contact lens is kept under 18 per cent GST rate which is rendering this incompatible to the main product and causing higher cost to consumers. We recommend to bring Contact Lenses and Lenscare solution under single GST rate of 5 per cent.

Healthcare services should be zero rated in GST: Under the current GST dispensation, healthcare services are exempt leading to GST paid on inputs adding to their costs. Our recommendation is to make health care services GST free. This can been achieved by zero rating the supply to the health care service provider.

GST on items issued for demo purposes, expiry returns and free trials: The cost of demonstrations and free samples, being inherent to the medical devices and implants, are already built into the final selling prices of finished goods that are sold against payment of GST. The cost of demonstrations and free samples, being inherent to the medical devices and implants, are already built into the final selling prices of finished goods that are sold against payment of GST. Therefore, the industry would like to urge the GST Council to exclude demonstrations, free trials and samples from the requirement of input tax reversal. Similarly, the Medical device best practices require the manufacturer/ distributor etc. to safely dispose of the expired goods to avoid misuse or adverse impact on health of patients and therefore at times, they have to take back expired items from trade channels. These should also be similarly excluded from the requirement of input tax reversal when disposed-off after taken back, in the best interest of patients.

Credit Note – Linkage with original invoice: Under GST requirements, every credit note must have an invoice reference, and also one credit note can be issued only against one single invoice. This is an administrative nightmare for the Trade and needs to be addressed at high priority.

Invoice – Barter Activities (product exchange): In case of items that come pre-packed in specific patient requirement (e.g. specific dioptre for contact lens), it is established trade practice to exchange products meeting the specific demand, with no change in overall value of products exchanged. Under GST, every time such an exchange is effected, an invoice needs to be generated, coupled with a credit note for product exchanged. This only leads to onerous compliance requirement for the Trade, while being GST neutral. It is recommended that pure exchanges should be allowed on the strength of a delivery challan not requiring sale invoice.

Sanjay Bhutani, Director, MTaI

Even though the year 2017 witnessed significant developments in the medical devices sector but there is an urgent need for the govt. to accelerate further reforms and supportive measures  in the year 2018 inorder to boost medical device manufacturing within the country, reducing huge import dependency in this sector which is still at 70-90 per cent, minimising outgo of foreign reserves, and making quality healthcare affordable and accessible to the masses at large.

Predictable tariff strategy for investors:

To implement “MAKE IN INDIA” on ground and exploit potential effect on exports, and the 70 per cent import dependent, over $10 billion Indian Market of Medical Devices domestic manufacturers seek a long term and predictable tariff strategy for investors who will only invest if they find it viable and profitable to manufacture Medical Device in India

Basic Custom Duty (BCD) on Medical Devices having export turnover of more than:

  • Rs 100 Crores (in any one of last 3 financial years), should be at least 15 per cent, considering WTO Bound Rate for 40 per cent.
  • Similarly, for Rs 10 Crores to Rs 100 Crores, BCD should be 10 per cent and for
  • Rs 5 Crores to Rs 10 Crores, BCD should be 7.5 per cent and for
  • Less than Rs 5 Crores, BCD could be at 5 per cent or higher.

The linkage of growing exports is to demonstrate growing capability and international competitiveness of these Devices to silence critics or India will forever remain import dependent on unaffordable Medical Devices.

Increase in Basic Custom Duty ranging from 0 – 7.5% to 5 – 15%

The availability of GST Credit to importers has led to reduced cost of procurement and the only protection domestic industry now has, is Basic Custom Duty. Against the range of 0 per cent to 7.5 per cent Basic Duty on nearly 90 per cent Medical Devices, the WTO (World Trade Organization) Bound Rate is 40 per cent which means Nations under WTO can increase duty up to a maximum of 40 per cent, if they so wish. Other BRICS Countries have Duty Rates as follows:

Import Duty on Medical Devices (HS Code 9018) in BRICS Countries

The point we at AiMeD have been trying to make for a long time is that nominal import duty on critical items which can be made in India is not protectionism but sound Make in India economics to revive the floundering manufacturing sector and the preferred policy tool the world over to boost domestic industry and employment. And we have already seen the beneficial impact of such steps in sectors like telecom, automobile and more recently in Electronics. Whereas we have allowed even Indian Manufacturers of Medical Devices to turn to cheaper imports.

The sector where manufacturing is thriving in India are Automobiles with 60 to 100 per cent Basic Custom Duty(BCD), Motor Cycles with 60 – 75 per cent BCD and Bicycles with 30 per cent BCD.

To boost  domestic manufacturing of Mobile Handset and Components, Government imposed a differential duty of 10-12.5 per cent. And the net result has been that every imported brand stepped forward to put a factory in India – whether Chinese or Taiwanese or American, including Apple.

With introduction of GST the differential Duty advantage was no more there and all foreign investors who had stepped forward were feeling stressed. The Govt. rightly revised custom duty on Electronics upto 20 per cent recently to maintain the investment climate and same is sought for Medical Electronics where import dependency is 90 per cent!

Though 2017 has been a very eventful and progressive year for the presently valued $10 billion Indian Medical Device Market starting from:

  • Medical Device Rules 2017. The new rules to regulate medical devices heeded the industry’s long standing demand to have medical device rules separate from drugs.
  • NPPA capping the prices of stents followed by orthopedic knee implants as well in a move to make Medical Devices more affordable and allowing Ethical Market competition.
  • Subsequently, the National Regulatory Authority, CDSCO coming up with classification of Medical Devices.
  • Mandatory display of MRP on all imported (and indigenous) medical devices.
  • Notification of accredited certified bodies under Quality Council of India for ICMED Certification
  • Inauguration of Medical Device Parks in Andhra Pradesh and in Telangana
  • Formation of Kalam Institute of Technology to promote indigenous R&D etc.

But the year 2018, will be a year to watch out for which would clarify further course of action to make medical devices more affordable.Much more needs to be done as the relief of correcting inverted duty structure needs to be similarly extended to other Medical Devices many of which are not in Chapter 90. Till now, there have been some significant measures and corrective steps but what we really expect is that this budget outlines and ensures a broad, country centric and comprehensive road map for boosting medical device industry within the country.

Specific Expectations from this Budget Session:

  • Extension of Inverted Duty Tariff Rationalization to Medical Electronics & Diagnostic.
  • Increase in Basic Custom Duty ranging from 0 – 7.5 per cent to 5 – 15 per cent, as access to GST credit has made imports cheaper against earlier protection of 7.5+6+4 per cent. Indian Manufacturers have only 7.5 per cent protection now.
  • MoH to review & discuss Medical Devices Bill for Law drafted in 2016 with stakeholders

Rajiv Nath, Forum Coordinator, Association of Indian Medical Device Industry (AiMeD)

Healthcare services have played a major role in nation building with the governments focus on developing more and more hospitals in the country. In order to meet these objective it is important that the services rendered to hospitals should keep away from the ambit of GST. The hospitals should be allowed to claim refund of GST on inputs as it will help the healthcare industry in cost optimisation by making the healthcare more affordable. Additionally charitable hospitals should be exempted from GST/ Central Excise/ Service Tax on supply of disposable, medicines implants, stents and lenses so that more Indigent and poor patients can be provided free and  concessional medical services, as more funds will be available to serve more needy patients. The exemption on GST on the inputs will reduce the cost to the hospitals and consequently cost of medical services to a patient.

Dr PM Bhujang, President, Association of Hospitals

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