#Budget2022: Deloitte lists top 3 asks of Indian life sciences sector

In a recent report, Charu Sehgal, National Leader for the Life Sciences and Healthcare Vertical, Deloitte India shares top three expectations of the sector:

The recent announcement of Ayushman Bharat Digital Mission (ABDM) is certainly a promising initiative in today’s digital age where the government plans to allot every citizen a health ID along with the platform to store the medical documents online. This coupled with growing telemedicine norm will surely help in making medical consulting available in remote areas. Keeping in perspective the holistic approach of prevention, cure and well-being, the increased budgetary allocation during the Union Budget 2021 gave impetus to the sector. However, achieving affordable healthcare for all is the ask of current times.

Expectations Top three asks:

Expectation #1: Tax holidays and funding for hospitals and skill development: Reintroducing tax holidays for rural hospitals with a flexibility to select beneficial years and viability gap funding by the government for setting up hospitals in Tier 1 and Tier 2 cities would make this area an attractive space for investment and strengthen country’s healthcare infrastructure. A weighted deduction of expenses incurred on skill development in the healthcare sector would facilitate government to achieve its aims of WHO recommended doctor patient ratio of 1:1000 by 2024.

Expectation #2: GST Reforms Bring more life-saving drugs at the lowest rate of GST and “zero-rating” of GST for health care services:

Healthcare services are currently exempt from GST except few elements of the services, due to which the procurement taxes (whether for inputs, input services or capital goods) form a significant part of the operational costs. This will achieve the twin objectives of keeping the credit chain intact and will ensure that the tax is not loaded on to the cost of healthcare services. Refunds on this account will enable the service providers to pass on the benefit in terms of affordable health care services. Increase in time period for closure of sale on approval (SOA) transactions from 6 months to 24 months Medical device suppliers supply various lifesaving goods such as implants and stents, etc., to hospitals on SOA basis.

As these goods come in various sizes/ types and are expensive, the hospitals do not upfront buy the same and get the goods on SOA basis. The invoice is issued by supplier only once the goods are consumed by hospitals. At times, this period may extend upto a couple of years. In view of this, it is recommended that prescribed period of 6 months for closure of SOA transactions be increased to 24 months, especially for implants, stents and other similar goods. Provide certain relaxations under GST law for expired medicines 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.

Expectation #3: Creating the ecosystem for innovation and research:

While the draft R&D policy focusses on creating an ecosystem for innovation and research, certain tax incentives for the investment in ‘R&D focused funds’, set up for R&D based activities, could be introduced. Research-linked incentives can provide the impetus to industry for increasing investment in R&D investment and build the much-needed linkages with academia to co-innovate. A research-linked incentive scheme could be introduced where the applicants are incentivized basis the R&D spend, employment, and added incentives based on outcome. An old ask pending to be addressed is in relation to current patent box regime.

The same needs improvement in terms of expanding its coverage to assignees/transferees of the patent instead of restricting it to only the true and first inventor of the invention. Introducing a reduced tax regime on commercialization of the patents anywhere across the globe will make it implementable.