Written by Monika Arora This year’s Union Budget comes at a time when there is geopolitical uncertainty across the world, fear of global recession, rising inflation, and a revival in Covid-19 cases in some countries. Just when the Indian economy was recovering from the fiscal consequences of the Covid-19 crisis, fresh cases have been triggering renewed fear and reminding us that healthcare is not a secondary option but a basic necessity and a priority. Having gone through three waves of the pandemic and looking at the size of India’s population, there is a dire need to put a robust and sustainable healthcare ecosystem in place. Budgeted expenditure on the health sector accounted for only 2.1 per cent of the GDP in 2021-22; hence a higher allocation is expected and needed to take it on par with at least APAC countries. The innovative schemes launched by the government such as Product-Linked Incentive (PLI), Pradhan Mantri National Dialysis Programme (PMNDP), Phased Manufacturing Plan (PMP) etc., have all proven beneficial and would thus require more attention and allocation for expansion. Let us now look at the most important forecasts for the tax regime in 2023. Indirect Taxes Low rate of GST on insurance premiums: Covid-19 has again emphasised the need to have medical insurance to take care of unexpected medical expenses. The health insurance premium currently attracts a GST rate of 18 per cent, which defeats the objective of making healthcare facilities affordable in all respects. It is high time that the government considers a reduced rate of 5 per cent on health insurance, which would not just encourage people to opt for medical insurance but also give them access to better medical facilities. PLI scheme for health care services: Taking cognizance of the success of the PLI scheme introduced for medical devices, the government should consider introducing a service linked scheme for the healthcare sector too, providing incentives to companies engaged in health care business, or in the setting up of hospitals or upgradation of medical infrastructure. Lower rate of GST on software-based services directly related to medical devices: Currently, GST rate of 18 per cent is levied on all software required for use of medical devices. The legislature may consider a lower GST rate for software cost, which will not only reduce tax incidence for healthcare services but also on the cost of manufacturing medical devices in India, thereby giving the domestically manufactured goods a competitive edge. Lower tax incidence on life-saving drugs: Bring more life-saving drugs into the lowest rate of GST and Customs duties to ensure affordability and better management of critical illness. GST on healthcare services: Recently, the government levied GST at 5 per cent (without ITC) on hospital rooms (non-ICU) if rental per day exceeds Rs 5,000. The GST regime promotes seamless flow of credit across goods and services and removes the cascading effect of taxes. Considering the 5 per cent GST levy on room rentals without ITC, GST paid on procurements by such clinical establishments will be a huge sticking cost, making healthcare services expensive. Therefore, it is recommended that hospitals be allowed ITC of GST on procurements when charging GST at 5 per cent on hospital rents. Direct Taxes For new healthcare projects, a tax holiday of 15 years may be prescribed and 10 years for existing ones with the flexibility to select ‘beneficial years’ and ‘viability gap funding’ for setting up hospitals in Tier 1 and Tier 2 cities. This would encourage more investment and strengthen the country’s healthcare infrastructure and also grant greater accessibility to quality and critical healthcare services; The Budget may also consider providing capital and tax incentives for expansion of small nursing homes/clinics into 50-100 bed hospitals and for converting small hospitals into larger ones; The Budget may consider creation of an ecosystem for Innovation, Research & Development by providing tax incentives for investment(s) in R & D Focused funds. Further, a separate fund may be created to improve R&D; The Budget could also look at inviting foreign investments into R&D in healthcare sector such that it could be helpful in enhancing existing healthcare technology and services; Additionally, the budget may also consider providing the weighted deduction up to 200 per cent for expenditure incurred on in-house R&D activities under Section 35(2AB) of the Income Tax Act, 1961. This, in our view, would entail a large benefit to the industry thereby encouraging more investments in R&D of the healthcare sector. Exemption from applicability of section 194R on free samples and medical devices where the actual beneficiaries are patients and not doctors. This would lead to ease in doing business along with a positive tax impact for the healthcare sector. In wake of the discussions delineated above, it can be comfortably stated that the Union Budget 2023 must be on qui vive to promote the healthcare sector for it would not only promote our country’s image globally, but also with the improvement in healthcare services, the common man’s interest would be upheld. We have all witnessed how gruesomely mankind was rattled by the Covid-19 pandemic. Written by Monika Arora, Partner Deloitte India with inputs from Indu Amar, Director; Namrata Arora, Director; Kanika Dhawan, Manager; and Pooja Khandelwal, Deputy Manager, Deloitte Haskins and Sells.
