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Budget 2011-12: Medical bills to rise 5%
February, 28th 2011

Medical bills will increase by 5%, as the Budget has levied service tax on hospital and diagnostic service providers. Pharmaceutical sector has expressed relief over continuation of concessions on excise duty provided during the global economic meltdown.

Centralised air conditioned (AC) hospitals with more than 25 beds and even diagnostic service providers are brought under 10% service tax. The effective service tax would be 5%, as there is a 50% rebate.

"There would not be any major impact on the hospital and diagnostic business segment, but the end user (patients) will end up paying more," says Hitesh Sharma, partner, national life sciences leader, Ernst & Young (E&Y). Earlier patients under insurance coverage were under the service tax bracket, but in this budget the government has expanded its scope of taxing by bringing even non-insurance patients under the tax bracket.

"This budget has not much for pharmaceutical industry as there is no major policy announcement," says Sujay Shetty, director, pharma life science, PricewaterhouseCoopers Pvt Ltd (PWC). The only positive, he said, was the increase in weighted average R&D deduction from 175% to 200%.

"There is indirect benefit for pharma sector as the government plans to develop cold-storage chain across the country for the agro-sector" said Mr Shetty. Currently, Indian pharma industry lack in cold-storage facility, which is one of the essential part when it comes to transporting drugs for long distance destination.

"The pharma industry was apprehensive that the government may withdraw concession on excise duty that was provided during the global economic melt-down." say Sunil Parekh, advisor to Zydus Cadila. Before the economic melt-down, the excise duty was in the range of 8% to 10%.This year, the excise duty was increased marginally from 4% to 5%.

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