Union Budget 2024: MTaI calls for reduction in customs duties on non-substitutable medical device imports

New Delhi: The Medical Technology Association of India (MTaI) has sought the attention of union government on the pending list of asks in the upcoming Union Budget 2024.

At a press briefing in New Delhi today, MTaI outlined the hurdles that still continue to restrict the medical technology sector, especially very high tariff and customs duty rates and imposition of additional health cess ad valorem.

At the same time, the leading MedTech industry association also appreciated the several new reforms like the National Medical Device Policy (NMDP) and Promotion of Research & Innovation in Pharma MedTech sector (PRIP) undertaken in 2023 to reduce compliance burdens and create globally harmonized regulations.

Addressing the media, Pavan Choudary, Chairman- MTaI and Managing Director- Vygon India, said, “It is heartening to see that the government has placed affordability as one of its top priorities. However, the customs duties and taxes levied on medical devices in India are one of the highest in the world and highest among the neighbouring countries which directly impacts patient affordability; this is therefore contradictory to what the government is trying to achieve. As per government data, more than 80% of critical medical devices are imported into India to meet the rising demand for quality healthcare. We hope that as the preparation for the Union Budget 2024 gets underway, a correction on the tariff rates is urgently being considered.”

In his comments, Sanjay Bhutani, Director, MTaI and Managing Director, Bausch & Lomb, said, “While India’s reliance on medical device imports may seem very high at first glance, a closer scrutiny provides a different picture. The rise in imports in India is primarily on account of the increasing demand for medical devices on the back of the rising population coupled with an increase in lifespan and lifestyle-related diseases. Moreover, the expansion of universal coverage schemes with initiatives like Ayushman Bharat (PMJAY) has amplified the demand for quality healthcare. However high taxation in the form of customs duty, and health cess, coupled with GST is detrimental to the interest of the patient as well as the industry. We believe customs duty rates should be lowered to 2.5% for all medical devices.”

Key issues highlighted by MTaI:

Reduction of High customs duties to 2.5% on medical devices: For products where the ability to import-substitute is still some time away; the high customs duty should be reduced. Additionally, since the custom duty regime on most of the medical devices in many neighboring countries is lower than in India, the difference in duties created could lead to the smuggling of the low-bulk-high-value devices.

Removal of Health Cess ad valorem: The 5% health cess ad valorem imposed on imported medical devices has further compounded the burden on the industry. India, like any other country which is catering to its healthcare demand fairly well, almost always rely in imports too. Therefore, an additional tax threatens to not only dent the access to advanced medical equipment coming to India but will also leave patients bearing the brunt of these additional costs adding to the inflationary spiral.

Increase public health spending to meet healthcare demand-supply gap: India currently has only 1.3 hospital beds per 1,000 population. An additional 3 million beds will be needed for India to achieve the target of 3 beds per 1,000 people by 2025. A similar gap exists in the availability of treatment services, as up to 60% of health facilities are concentrated in a handful of large cities across the country. Therefore, there is a need for focused increase in public spending on health infrastructure especially in Tier 2, Tier 3 cities and rural areas in the Union budget 2024-25.

Incentivizing Skilling initiatives to bridge skill gap: At present, there is an acute shortage of skilled healthcare workers, with 0.65 physicians per 1,000 people (the WHO standard is 1 per 1,000 people) and 1.3 nurses per 1,000 people. It is estimated that another 1.54 million doctors and 2.4 million nurses will be required to meet the growing demand for quality healthcare in India due to initiatives like Ayushman Bharat (PM-JAY). To meet this demand, the private sector can be encouraged to take-up workforce skilling activities along with NSDC or HSSC for which tax incentives can be provided.

Expanding the coverage of government health insurance schemes to include day care surgeries and home healthcare:

New-innovations in medical technology like Minimally Invasive Procedures, Robotic Assisted Surgery (RAS), etc. have drastically reduced the procedure time enabling hospitals to perform surgeries in hours thereby avoiding patient hospitalization. However, barring a few procedures like cataract, dialysis, etc; procedures which do not require overnight hospitalization are not covered in insurance coverage schemes.

Coverage of homecare services will benefit both patients and hospitals by reducing the cost of care and by increasing the availability of hospital beds.

Tax Deduction at Source related to providing any benefit or perquisite to a resident (Section 194R of The Income Tax Act) and applicability on Medical Samples

The demo equipment/device is used by doctor as a normal customer to take a purchase decision, and as such use of demo equipment/device should not be covered under the provisions under “use of business asset”. Under the current provisions of IT Act even the value of the demo equipment/device has to be proportionately considered as passing on the benefit to the Doctor where Demo is placed, including the value of any accessories/spares necessary for Demo. There needs to be specific exemption under the existing law to exclude placement of equipment for Demonstration/Test use. We request that a clarification be issued by CBDT under FAQ to remove this ambiguity.

Issuance of samples to Doctors is a well-established practice and is in the best interest of patients. The samples issued to Doctors are marked as “not for sale” and accordingly there is no income accruing to Doctor on use of the samples for their patients. Accordingly, such samples that are marked as “not for sale” should be excluded from the coverage of these provisions as this would result in undue cost to the suppliers/customers.

The mandate to deduct 10 % TDS on the samples provided to hospitals/ individual consultants, above 20000 INR (which may be just a few catheters/ consumables/ disposables where medical devices are concerned), will affect clinical up-skilling, re-skilling and also affect medical research. 

GST on healthcare services: Healthcare services are currently under exempt category, which means, while the service provider would not charge GST, they would also be able to avail input credit, resulting in GST up to input stage being included in cost-of-service provider and eventually recovered from patient by way of higher treatment costs. It is recommended that Healthcare services should be zero rated instead of being under “exempt” category. Once zero rated, Hospitals will be able to avail GST credit on inputs, leading to lower healthcare services cost for patients.