Union Budget expectations

As India prepares for the forthcoming Union Budget, Deloitte India experts delve into key areas in the the Life Sciences and Healthcare sector.

Healthcare delivery: Enhancing the overall healthcare system in the country
In the past few years, the healthcare sector has been a priority for the government, with a steady increase in allocations in previous budgets. In the Union Budget 2022-23, the Ministry of Health and Family Welfare received an allocation of about `86,200 crore, representing a 16.5 percent increase compared with the previous year. However, to increase the penetration of digital health, the following things can be done:

• Awareness campaigns for diseases and the patient care availability nearby.
• Consolidation of data health records, past medical records, etc. improved chronic disease management, promote medication, and treatment adherence.
• Training for nurses, midwives, and semi-professional support staff on telemedicine.
• Emergency care through satellite kiosks and medicines through drone facility.

Direct Tax
Expectation: Extension of sunset date for qualifying for concessional tax rate on income of new manufacturing domestic companies.

• The Taxation Laws (Amendment) Act, 2019, inter-alia, inserted section 115BAB to Act provides that new manufacturing domestic companies set up on or after 1 October 2019 commence manufacturing or production by 31 March 2023. These companies do not avail of any specified incentive or deductions; they may opt to pay tax at a concessional rate of 15 percent.
• The time for commencing manufacturing or production was extended to 31 March 2024 by the Finance Act, 2022.
• Considering that the government promotes companies to Make in India, we request that the time limit for commencing manufacturing or production be further extended to 31 March 2026.

Expectation: Modification of sub-section(2)(b) of section 115BAB.

• Section 115BAB provides a concessional tax rate of 15 percent to the company that is engaged in the business of manufacturing or production of any article or thing and research in relation to, or distribution of, such article or thing manufactured or produced by it.
• Considering that the government intends to promote research, innovation, and development in India, we request that companies involved only in research-related activities should be included for concessional tax rate under section 115BAB. The concessional rate should not be restricted to only research in relation to article/thing manufactured or produced by the company.

Expectation: Extension of the sunset clause for Section 194LC.

• For interest income on borrowings in foreign currency up to 1 July 2023, the concessional tax rate is 5 percent. This has significantly provided a viable and attractive avenue for raising funds by Indian businesses, thus helping India to maintain the momentum in economic growth over the years.
• Therefore, the sunset period should be extended for borrowings in foreign currency up to 31 March 2026; this would support the vision of Make in India.

Expectation: Clarification on product samples and low brand value items.

• According to CBDT circular no. 18 of 2022 (Question No. 4), section 194R is applicable to free samples.
• Given that the Drugs and Cosmetics Rules of 1945 acknowledge the practice of supplying drugs as free samples to medical professionals, it is advisable to consider the distribution of free product samples up to a permissible limit as a legitimate marketing expense. This should be eligible for deduction under section 37 and should not be subject to the provisions of section 194R.
• As MCI regulations do not provide a penalty for accepting gifts of value below `1,000, low-value brand reminders up to `1,000 per item given as part of marketing activity should be allowed as a deduction under section 37.

Expectation: Re-introduction of weighted deduction under section 35(2AB).

• For a company engaged in the business of biotechnology or any business of manufacture or production of any article or thing, not being an article or thing, a weighted deduction of 200 percent up to March 2017 and 150 percent up to March 2020 was allowed on the expenditure incurred on scientific research (not being expenditure like cost of any land or building) on in-house research and development facility as approved by the DSIR.
• To promote research, innovation, and development in India, weighted deduction for expenditure on R&D should be reintroduced.

Further, eligibility for weighted deduction should be extended to companies that have opted for the new tax regime.The new regime entitles a lower tax rate of 25.17 percent as a majority of the companies are covered by this tax rate.

Regulatory
Expectation: Streamline the existing regulatory framework through a “one regulator” approach.

• Multiple regulators regulate multiple licences and compliances for both pharmaceuticals and medical devices. For instance, a drug licence is required for each state, separately for each category. The central licence is also required for clinical trials and new drug approvals. Similarly, in the case of certain categories of drugs/medical treatments, additional approvals from PESO, the Atomic Energy Regulatory Board, may be required. For pharma and medical devices policies, the Department of Pharmaceutical is the nodal agency.
• Due to the multiplicity of regulatory processes and multiple regulators, undertaking operations become complex and time-consuming. In addition, the practice adopted by different regulators for licensing and enforcement varies in each state.
• In light of the above, the government should consider forming a single regulatory authority each for pharmaceuticals and medical devices with experts from across the sectors on board.

Expectation: Offer additional incentives to promote the manufacturing of pharmaceutical products, including research in India.

• Providing tax incentives through additional deductions under the Income Tax Act (as was earlier provided under Section 35(2AB)) and GST exemptions for companies participating in PRIP can serve as a powerful catalyst for advancing investments in innovation and product development. This has been implemented globally, including China.

Providing preference of procurement in the government tenders for Indian manufactured products especially where R&D is performed in India for developing such products.

• To encourage greater participation by foreign companies in the public procurement process (Public Procurement (Make in India) Order 2017) and promote increased local value addition/ manufacturing in India, the government should consider providing preferential treatment to the companies participating in the PRIP scheme and Production Linked Incentive (PLI) scheme. In addition, the concept of offsets should be introduced while computing the local content. Hence, value addition should be considered on a composite basis.
• This concept would encourage companies to proactively participate in PRIP and PLI with a longer-term vision of enhanced market access. This would also provide a much-needed push to the government’s Make in India vision of becoming a global manufacturing hub.

Expectation: Incentivise companies to undertake skill development initiatives for pharma/healthcare professionals.

• Indian head-quartered pharmaceutical manufacturers strongly feel the need for regular hands-on upskilling of people working or entering the pharma sector in operations’ roles, particularly in the manufacturing and quality functions. To incentivize organizations for providing funding to such training institutes, the government can propose an additional deduction (1.25 times) on the funds spent by organizations for this purpose.
• A recent WHO report estimated a shortage of about 1.8 million health workforces in India and suggests that to meet the threshold of 34.5 skilled health workers per 10,000 population, there will be a shortfall of 0.16 million doctors and 0.65 million nurses/midwives in the total stock by 2030.
• This emphasizes the need to scale-up high quality, transformative education, and reinforce skill development as a major focus area to meet the increasing demand. To achieve this, strong collaboration should be fostered between skill training institutions and the industry to align training with the current and future needs of the job market.
• For the same, the government should consider providing incentives to the industry for undertaking skill development initiatives for paramedics in government hospitals and colleges/ universities.

The author is Joydeep Ghosh, Partner, Industry Leader-Life Sciences and Healthcare, Deloitte India.