By Sunil D Shah & Rajesh C Patil
With the Union Budget 2015 to be announced tomorrow, there is a flurry of expectations from the Finance Minister to announce incentives in various fields. The healthcare and life sciences sector is one such. It is fairly well established that a holistic approach is needed to improve and expand the state of healthcare and life sciences in India specially as the industry is expanding at a rapid pace.
India’s pharmaceutical sales were an estimated $18.3 billion and the estimated healthcare expenditure were $96.3 billion in 2013. Government spending on healthcare in India was an estimated 5 percent of the gross domestic product (GDP) in 2013 and is expected to remain at that level through 2016 . In terms of spend; Asia is the largest of the global spenders on R&D followed by America and Europe. A snapshot of the R&D spends is provided below :
Considering the thrust on the ‘Make in India’ programme, it is expected that the Government may announce important measures in healthcare and life sciences industry. Though certain amendments were made by the Finance Minister in his maiden budget, the wish list of the taxpayers in these areas continue.
Incentives for R&D
Research and development (R&D) is one of the driving factors for speedy growth in any sector. It is imperative to provide an impetus to R&D activities.
The tax incentive available in respect of expenditure incurred on R&D activities is in the form of weighted deduction for in-house R&D. Despite such an incentive, the spend of R&D in India was just 0.90 percent of it’s GDP as compared to a global average of 1.77 percent in 2013. Through the Budget 2015, the Government should aim at providing exemption to companies engaged in the business of R&D by providing profit linked incentives like the erstwhile section 80-IB(8A) or Patent Box regime like in the UK, The Netherlands etc.
Currently, deduction is available only in respect of expenditure incurred on in-house R&D facility which has been approved by Department of Scientific and Industrial Research (DSIR). The Government may consider allowing weighted deduction for the entire expenditure incurred for an approved R&D facility which is eligible for weighted deductions and clinical trials which are carried out in approved hospitals and institutions outside the research and development unit.
The DSIR guidelines introduced in the month of May 2014 require certain relaxations. Currently, only those personnel with a Diploma/Degree in Science and above will be regarded as R&D manpower and eligible for weighted deduction. Retainerships/ consultants and manpower on contract are not admissible for weighted tax deduction. The Finance Minister may consider appropriate amendment in the tax laws in light of the above DSIR guidelines.
Minimum Alternate Tax
Currently, weighted deduction is not allowed while computing book profits. It will be a welcome proposal if the amount of weighted deduction under section 35(2AB) is allowed while computing tax under section 115JB.
Rural healthcare infrastructure
Rural and semi urban areas in India do not have basic healthcare infrastructure. The statistics for India’s health infrastructure are below as compared with the other countries. USA has one bed for every 350 patients while the ratio for Japan is 1 for 85. In contrast, India has 1 for every 1,050 patients. Rural healthcare infrastructure needs to be strengthened and augmented. In this regard, the Government should allow weighted deduction in respect of healthcare infrastructure expenditure incurred in rural/ semi urban areas.
Benefits for hospitals
Currently, deduction is available where the specified business is in the nature of building and operating a new hospital with at least 100 beds for patients. India’s health care sector witnesses close to 50% spend on in-bed patients suffering from lifestyle diseases like diabetes especially in urban and semi-urban areas. With the rapid growth in diseases and consequently the healthcare costs rising, it is imperative for the Government to liberalize the provisions of section 35AD to include new hospitals having less than 100 beds for patients.
Further, 100 percent deduction is available to an undertaking deriving profits from the business of operating and maintaining a hospital located anywhere in India except certain urban areas which has been constructed and started functioning during the period 1 April 2008 to 31 March 2013. The provision may be extended beyond 31 March 2013 and the benefit may also be extended to hospitals situated in those areas which had been excluded.
The amount of non-taxable medical reimbursement allowed to the taxpayer is Rs.15,000. It will be a welcome proposal if the Government enhances the limit of medical reimbursement at least to Rs. 50,000.
To sum up, the Government needs to enact sound policies and tax incentives to improve healthcare in India. Therefore, it will be interesting to see what the Budget 2015 has in store for the healthcare and life sciences industry.
(Sunil D. Shah is partner, Deloitte Haskins & Sells LLP, and Rajesh C Patil is director)
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Updated Date: Feb 27, 2015 17:26:37 IST