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Government Proposes 5% Health Cess On Import Of Medical Devices

To give impetus to domestic industry and generate funds for health services

To achieve the twin objectives of supporting local manufacturers and generating funds to create health infrastructure, the Budget has imposed a 5 per cent health cess on import of medical devices.

But will this work? Or could it become a double-edged sword, increasing the end-cost on devices for patients and discouraging large med-tech producers importing high-end products into India?

Representing a section of local producers, Rajiv Nath, who is with the Association for Indian Medical Device Industry (AiMED), estimates the health cess would generate about 2000 crore for the Government to invest in healthcare infrastructure. Imports last year stood at 38,000 core and it would record at least 40,000 crore this year, said Nath.

Local manufacturers have been pointing out to the Government that their “Make in India” initiative would fall flat if it was easier to import products rather than develop them domestically.

Medical devices got a mention several times in Finance Minister Nirmala Sitharaman’s Budget speech. “We have made considerable progress in medical equipment too. Till few years back, we were dependent on imports for medical equipment. Now, not only are we manufacturing medical equipment, we are also exporting them in large quantities,” she said.

Exempted from cess

The proceeds from the 5 per cent health cess was to create infrastructure in aspiration districts, the Finance Minister said, adding that products that had a basic Customs duty exemption and input materials would not attract the cess.

Till recently, medical devices attracted 0-7.5 per cent Customs duty, and components up to 2.5 per cent. AiMED has called for the tax on components to be gradually increased over the years to prevent local industry from becoming “pseudo-manufacturers”, who merely assembled products here or made a syringe but imported the needle etc. However, he added, raw materials, which would be further processed to make a product locally, should not be taxed.

But Kapil Banga, ICRA Assistant Vice-President, said the health cess would increase the import cost of high-end products in the short term. These ranged from cardiac stents to implants, radiation equipment, robotic arms used in surgeries, high-end scanners etc. The increase would most likely be passed on to patients, he said. In the long term, it could encourage domestic producers and create the right ecosystem to develop such technology, he added.

Increase health-care costs

On possible price increase, AiMEd, however, suggested that the Government bring in price caps on products that reflect a maximum retail price that is six times the import landed cost.

Concerned over the health cess, Abby Pratt, Vice-President at AdvaMed (Advanced Medical Technology Association), said it could have “unintended, adverse consequences, including limiting patient access to appropriate medical technology treatments and cures available in other countries, and ultimately increased — not decreased — health-care costs.”

“We believe a stable and predictable market environment is key to driving future investments in R&D, manufacturing, and other services to grow the medical technology industry in India, and meet the current and future needs of all of India’s people,” she added.

Pointing out that the health cess was contrary to the Government’s vision on affordable healthcare, Meenakshi Nevatia, Managing Director at STRYKER India, said it would “impact the ability of medical device companies to continue bringing innovative medical implants to India.” It would hurt the sector already “reeling under price capping on premium devices,” and impact investments in research and innovation by the global medical devices companies in India, she added.-The Hindu Businessline