Medical association seeks tax breaks for GST and R&D centres from budget

Last Updated: Tue, Jan 09, 2018 18:28 hrs
Medical device healthcare

With the budget only a fortnight and half away, the Medical Technology Association of India (MTal) has already started with its expectations from the budget. Finance Minister Arun Jaitley is expected to formally table the Budget in Parliament on February 1.

The association (MTal) has sought tax-sops for companies engaging in the research and development of medical device manufacturing. The association has arrived with a list of tax-breaks, holidays and concerns surrounding myriad issues and topics within the medical technology fraternity.

"The government needs to provide tax holiday to medical device R&D centres under the transfer pricing act to boost investment in high innovation based in-house capabilities centres," read a report from the association.

The agency also demanded tax incentives in order to boost development of patents and tax deduction in income made by individuals or a company for rewards earned on patent development or licensing of patents.

The report from MTal raises concerns over higher custom duties on medical devices. The customs rate on importing of medical devices saw an increase of 50-60% which has impacted costs of medical services in India. This also defeats the government's healthcare focus.

Speaking about Minimum Alternative Tax rates, the association suggested that the present effective rate of 21.34% was high and cast a substantial burden on companies that were exposed to global market conditions. Considering that MAT was a minimum and alternative tax, the rate should not have been over 50% of the basic corporate tax rate.

"It is most desirable that it should be restored to 15%, as the levy of MAT is nothing but the tax on genuine incentives provided in the statute itself on fulfilment of the development needs of the country," said the association.

Speaking about GST, the report identified that GST rate of 12% on medical devices under the HSN code 9021, which previously attracted nil rate of counter-vailing Duty was very high.

The association calculated that the current embedded tax component worked to 6-6.5% within the VAT regime. The 9021 chapter covered products such as Orthopaedic Appliances, Including Crutches Surgical Belts and Trusses; Splints and Other Fracture Appliances; Intraocular Lenses, Artificial Parts of the body; Hearing Aids and Other Appliances which are worn or carried or implanted in the body, to compensate for a defect or disability.

The increased tax under GST raises healthcare cost for the patients and needs to be corrected at the earliest.

For services, the association argued that healthcare services should be zero rated in GST, although healthcare as a service remained exempt from GST under the current dispensation.

MTal explained that although healthcare services remained exempt under Service Tax, none the less, the tax (e.g. VAT and Service Tax) on inputs continued to be adding to their costs and there remains no refund of input taxes.

This has resulted in denial of desired state of a tax free low cost regime for these services.

"With GST, while there has been an increase in GST on medical devices, medicines (5%/12.5% to GST of 12%-28%) and various services (15% to 18%), the exemption status for hospital services has been maintained even in GST. This in effect, will only result in increased costs for healthcare services as they will not be entitled for any refunds for GST on inputs and eventually increased prices," said MTal.

MTal further shared that this was not in line with the stated objective of the Government to provide affordable low cost healthcare services.

"One upcoming area related to Medical Tourism which is niche at present but has been growing rapidly also needs to be considered when considering healthcare services. India's medical tourism market is expected to more than double in size from USD 3 billion at present to around USD 8 billion by 2020 if nurtured well. Medical tourism helps generate the much needed foreign exchange and is also supportive of allied players in travel and tourism industry," MTal added.