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Cess On Imported Medical Devices To Make Healthcare Costlier

The government decision to impose 5 percent health cess on imports of medical equipment, over and above basic customs duty (BCD), is expected to increase the treatment costs for patients.

Finance Minister Nirmala Sitharaman in her Budget 2020 said the 5 percent health cess will provide funds to set up hospitals in backward districts and encourage local manufacturing.

Currently, most medical device imports attract a basic customs duty of 7.5 percent.

With an additional 5 percent cess, the revised customs duty becomes 12.5 percent,  in addition to the education cess levied on importers.

The government has, however, exempted inputs and parts used in the manufacture of medical devices from the health cess.

Analysts say patients may have to shell out more for treatments now.

“Import of medical devices and instruments will become costlier which would impact the patients as the burden will get passed and ultimately increase the cost of treatment,” said Sanjay Singh, Partner and Head, Life Sciences, KPMG.

India imports about 80 percent of its medical devices.

The medical device imports grew 24 percent to Rs 38,837 crore in FY19.

The government is expected to garner about Rs 1,800-2,000 crore through the health cess.

The Finance Minister in the Budget proposed to set up a Viability Gap funding window for setting up hospitals in the public-private partnership (PPP) mode.

In the first phase, those aspirational districts will be covered, where currently there are no Ayushman-empanelled hospitals.

The medical device industry in India is valued at $5.2 billion and is growing at 12-15 percent.

Multinational medical device and equipment makers are worried about the imposition of the cess.

Industry response

“We feel the budget proposal to impose a health cess on the imported medical devices is a worrisome move and is contrary to government’s vision to provide affordable healthcare to Indian patients which depends largely on imported technologies,” said Meenakshi Nevatia, Managing Director, Stryker India.

Nevatia said the removal of duty exemption on critical implants will hugely impact the ability of medical device companies to continue bringing innovative medical implants to India.

Stryker is a US-based surgical implant manufacturer. India imports about one-fourth of medical equipment from the US.

MNCs are also worried about the possibility of smuggling of low-bulk-high-value devices becoming rampant due to duty differential between India and the neighbouring countries.

Neighbouring countries of Nepal, Bangladesh, Sri-Lanka, and Bhutan charge lower custom duties than India on medical devices.

But the domestic medical device industry isn’t complaining.

The Association of Indian Medical Device Industry (AiMeD), the domestic industry lobby that claims to have around 300 members, which demanded that the government seeking 15 percent duty on imports of devices is happy.

“It’s an excellent idea to tax imports of medical devices to fund the capacity building of healthcare delivery in public healthcare & with twin advantage of accelerating medical devices manufacturing as a Make in India enabler so that Indian National Healthcare security concerns are addressed,” said Rajiv Nath, Forum Coordinator of AiMeD.

Make in India

The domestic companies are largely involved in manufacturing low-end products for local consumption and exports, though a few have started making devices of higher complexity such as stents, orthopaedic and dental implants, and assembling other medical equipment like ultrasound machines, ventilators, among others.

The government is trying to reduce import dependence.

Sitharaman said that there would be a detailed scheme announced soon to promote manufacturing of mobile phones, electronics and semiconductor packaging in the country and that this scheme could be extended to medical devices as well.

“While 100% FDI in medical devices manufacturing has been open for a while, it remains to be seen how the new scheme for electronics’ manufacturing will play out, and more importantly how will this scheme be customized to encourage medical devices manufacturers to make in India,” Sameer Sah, Partner Khaitan & Co.-Money Control

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