With the objective of providing an impetus to the domestic manufacturing industry, as well as generating resources for health infrastructure and allied services, the ministry of finance has, by way of the Finance Bill 2020, levied a health cess on specified imports of medical equipment/devices with effect from February 2.
As per the proposal, health cess will be levied at the rate of 5% ad valorem on the import value of the medical equipment/ device. Though it is called health cess, the levy is imposed not on the customs duty amount but the value of goods imported. The medical equipment/devices falling under the ambit of health cess include ultrasonic scanning apparatus, syringes/needles/catheters/cannulae, blood transfusion apparatus, artificial teeth/joints, hearing aids, etc. In addition, specific medical equipment imported from certain regions (i.e., Singapore, Korea, ASEAN countries, Malaysia, Japan), inputs/ parts used in the manufacture of medical devices, as well as few other medical devices have been exempted from the levy of health cess.
Typically, a country would import goods from another country for two reasons—either goods of similar quality are not available in the domestic market or while substitutable goods are available in the domestic market, the cost of the imported goods is lower. Making the medical devices more expensive may achieve many things except making quality healthcare available to the poorer sections of the population.
In a developing country like India, where per capita disposable income is very low, one of the primary objectives of the government should be to make low-cost healthcare available to all. Imposition of health cess goes against this objective, since this additional duty incurred by the companies would result in an increase in prices of vital medical equipment/devices, which would ultimately be recovered from end consumers. This would ultimately end up increasing the cost of healthcare.
Imposition of health cess is discriminatory since it is imposed on a specific sector, on import of specific medical equipments/devices. While cesses have been imposed in the past, these were applicable to the whole of the economy (and not a specific type of goods). In case the objective for imposing health cess was to generate resources for health infrastructure, the government could have imposed a cess that was applicable to all industries without any distinction. It is also worth noting that health cess is imposed only on imports made from specific jurisdictions while other regions, such as ASEAN, have been excluded from the levy.
Domestic industry in India does not have the capacity to develop medical equipments/devices in such quantity as can meet the requirements of the market. Further, the quality of medical equipments/devices manufactured by domestic manufacturers may not be at par with the ones manufactured by their foreign counterparts. Till the time industry reaches a level where it can provide the requisite quantity and quality to meet the market demand, it would be against the interest of end consumers to bear such burden of increased costs. Further, the government can protect the interest of domestic manufactures of medical devices by adopting alternate measures:
*Reducing/exempting duty on import of inputs and parts of medical equipments/ devices;
*Rationalising rates of GST on inputs/parts used in manufacture of medical equipment/devices; and n Reduction in rates of GST on manufacturing in India.
A debate that is yet to take place at the national stage is whether the economic development of the country matters more than the welfare of the people—assuming there is not always a direct correlation between the two. But, when this happens, one would hope that Ayushman Bharat takes precedence over Make in India.
Authored by J Sagar Associates for Financial Express