5 min readJan 28, 2022 11:03 PM IST
First published on: Jan 28, 2022 at 11:02 PM IST
Written by Gulzar Didwania and Anubhav Jain
Impact of Covid-19 pandemic on the LSHC industry
The Covid-19 pandemic has had a substantial impact on the entire Life Sciences and Health Care (LSHC) industry. From shortage of masks, vaccines, APIs, medicines to scarcity of oxygen concentrators, the sector has witnessed all ups and downs during the past 20 months. Since the onset of the Covid-19 crisis in the country, the Government of India has laid greater emphasis on introducing policies to strengthen the Indian healthcare industry. The Prime Minister’s Atmanirbhar Bharat Abhiyaan launched in May 2020 and November 2020 included several short-term and long-term measures for the LSHC industry including Production-Linked Incentive (PLI) schemes for boosting domestic manufacturing of pharmaceuticals and medical devices.
The government’s interventions on providing tax incentives to the healthcare industry has opened up greater avenues for industry participants such as hospitals, pharma companies, medical devices and equipment manufacturers, health insurance companies, telemedicine etc. The government’s announcement of production-linked incentive scheme with a financial outlay of Rs 6,940 crores on 21 July 2020 aimed at boosting India’s bulk drug facility was a welcome measure for Indian Active Pharmaceutical Ingredients / Key Starting Materials / Drug Intermediaries manufacturers. Similarly, Phase II of the PLI scheme notified on 3 March 2021 was focused on complex generics, patented drugs, in-vitro devices etc., with a financial outlay of Rs 15,000 crores. With these schemes, it is expected that India’s domestic pharmaceutical market will grow 3x in the next decade or so. Additional initiatives by the government to combat pandemic were reduction in basic Customs duties on Covid-related drugs such as Remdesivir and its key raw materials, oxygen cylinders, diagnostic kits, exemption on Covid relief material donated from abroad, ease in Customs clearances for Covid related imports etc.
Key issues faced by the industry
Despite the government’s measures to boost the LSHC industry to combat the Covid-19 crisis, there are still various tax issues which need attention such as inverted duty structures for medical devices, exemption for healthcare services leading to blockage of input tax credits, disputes on classification and GST rates for hand sanitizers, classification of accessories/parts of medical devices etc.
The Covid-19 pandemic has remained challenging for the Indian healthcare system. Lack of adequate healthcare infrastructure, demand-supply mismatches and shortages of basic supplies are some problems that came to the fore during the pandemic. Therefore, the government needs to focus on increasing healthcare spending and introducing more industry-friendly policies in the LHSC sector. The advent of emerging technology viz. Artificial Intelligence, Machine Learning, Internet of Medical Things (IoMT) etc. in the healthcare industry especially in the telemedicine start-ups, needs larger financial support from the government. Further introduction of R&D tax credits in the healthcare industry is essential to revolutionise the healthcare facilities in the country. While all these issues cannot be fixed in one go, some key areas that the government should consider from a GST standpoint are as follows:
Key asks of the LSHC industry from Union Budget 2022-23
- Zero-rating of healthcare services: Due to the GST exemption on healthcare services, GST paid on inputs and input services used in this industry becomes a cost in the system resulting in increased prices. Zero-rating of healthcare services will enable the industry to claim refund of the GST paid on inputs and/ or input services used for the provision of healthcare services, thereby reducing the overall cost for the consumer.
- Reduction of GST rate on medical equipment and devices: The current GST rate on various medical equipment, devices and instruments is 12 per cent. It is recommended that medical equipment, devices and instruments and their parts be brought at par with other preferential products and taxed at a preferential GST rate of 5 per cent to reduce the cost of healthcare services.
- GST classification of Hand Sanitizers: Ever since the issuance of press release dated 15 July 2020 clarifying that alcohol-based hand sanitizers attract a GST rate of 18 per cent, the classification of hand sanitizers has become a big issue within the industry players as well as the government. It has unsettled the pre-GST position resulting into various enquiries and investigations for taxpayers. Appropriate clarity backed up with legal principles should be provided by the government to address this burning issue.
- GST credit of expired goods: The expiry of the medicines ranges from 2-3 years from the date of manufacture. Accordingly, the return of such expired medicines to manufacturers/distributors and subsequent disposal by the manufacturers/distributors requires reversal of input tax credits. Considering the fact that this is a mandatory business need, such credit reversal should not be warranted.
The sector has played a pivotal role in the unprecedented Covid-19 pandemic crisis and during the last 20 months, we have also realised the dire need to further strengthen this sector. While the government has taken several steps to make the sector truly Atmanirbhar, addressing the above issues would also be another step in the right direction.
Gulzar Didwania is a Partner and Anubhav Jain is a Manager with Deloitte Haskins and Sells LLP. Views expressed are that of the authors.
Since the onset of the Covid-19 crisis in the country, the Government of India has laid greater emphasis on introducing policies to strengthen the Indian healthcare industry. (Representative image, source: Pixabay) 
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