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Balanced Budget for industry
July, 13th 2009

The Honourable Finance Minister in his introductory speech mentioned that one of the focuses for the Budget 2009 was the common man. He did make some reforms towards this end but, very little in the health sciences sector. By and large for the industry, the budget would be neutral.

Rashtriya Swasthya Bima Yojana provides for medical care (insurance) to poor families below poverty line. More than 46 lakhs such families have been issued biometric smart cards, which provide them the freedom to choose hospitals from an extensive list; thus, making quality healthcare facilities available to them. Till now the coverage of this program was limited to certain states. It is now proposed to extend the coverage of this program to all below poverty line families. Towards this end, additional budget allocation of INR 350 crores has been made, which is a 40 percent increase over last year. The Finance Minister has also increased the budget allocation for the National Rural Health Mission (a body with its primary focus to improve availability and accessibility of quality healthcare to the poor, women and children especially to the rural populace) by INR 2,057 crore over the INR 12,070 crore provided in the Interim budget.

On tax front, basic customs duty on certain drugs (and bulk drugs for their manufacture)/ vaccine has been reduced from 10 to 5 per cent. Levy of excise duty/ additional customs duty on the same have been removed. Also, for certain medical devices the basic customs duty has been reduced from 7.5 to 5 percent, with a concurrent reduction in excise/ additional customs duty to Nil (where it was applicable). These should help in reducing cost of other wise expensive ailments such as heart diseases, cancer and arthritis Again a benefit to the common man.

Whilst, the rich may take some brunt with the introduction of service tax on cosmetic and plastic surgery services meant to preserve or enhance physical appearance or beauty and increase in excise duty on contact lenses from 4 to 8 per cent.

The global pharma industry is at cross roads today. With shrinkage of pipeline of new durgs and increasing costs, although India has not yet lost its charm, acceleration for increased growth is nonetheless imperative. On the top industrys wish list were fiscal and tax incentives for new product development, contract manufacturing, clinical trials and exports. If the industry wish list was paid any heed, it could have gone a long way to give India a better competitive edge in the global market. However, the same remains undone.

Even the domestic market has not been bestowed with any benefits. Some unaddressed issues are - making excise duty on Active Pharmaceutical 
Ingredients (8 percent) at par with that of finished formulations (4 percent), harmonising regulatory and tax laws, extending deduction from profits to hospitals from 5 years to choice of 5 year period from the initial 10 years, etc.

There are few broad changes, which would have an impact on the pharma industry, which are discussed below.

In an attempt to settle the debate of applicability of tax deduction at source on contract manufacturing, a specific clarification in the domestic law has been provided. Payments to contract manufacturers would now attract tax deduction at source at the rate of 2 percent where material is supplied by the principal.

From the other direct tax proposals in general, the industry is glad about the proposal of abolishment of fringe benefit tax, given the level of expenditure towards travel, hotel lodging/ boarding, sales promotion, conference, etc in the pharma space. Also, extension of benefits to export oriented units till March 2011 has been welcomed. To offset this happiness is the increase in the rate of Minimum Alternate Tax (from 11.33% to 16.995% including surcharge and education cess).

To sum up, the Budget 2009 has not aroused much sentiment for the health sciences industry.

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