Pharmaceutical companies in the country, the largest provider of generic drugs globally, have faced several challenges in recent times. Where on one hand currency fluctuations have limited the profitability for some companies, regulatory restrictions and pending approvals have impacted the others in the past one year. In a boost to the industry, the government has allowed FDI or foreign direct investment up to 100 per cent under the automatic route for manufacturing of medical devices under certain conditions. But are there any other steps needed to boost the pharma sector? With the government set to present its Interim Budget on February 1, all eyes are on any announcements for the pharma sector.
Here are some of the expectations in the healthcare sector listed by industry body Ficci:
Tax Exemption on preventive health check-ups
Every year, roughly 5.8 million persons in the country succumb to heart and lung diseases, stroke, cancer and diabetes. Non-communicable Diseases (NCDs) like diabetes, heart diseases and respiratory diseases are expected to comprise more than 75 per cent of the country's disease burden by 2025. Preventive health check-ups can help in early diagnosis and timely treatment of NCDs, hence lowering complications, mortality and burden on secondary and tertiary care facilities. It is recommended that tax exemption on preventive health check-up should be raised from the current Rs 5,000 per person to Rs 20,000 under section 80-D of Income Tax Act 1961.
Further, given the rising advent of lifestyle diseases in the country and the need to prevent loss of productivity, it is imperative that employers get a separate annual deduction of up to Rs 10,000 per employee, towards expenses incurred for sponsoring the health check expenses of their employees.
Medical reimbursement exemption limit for salaried employees to be set at Rs 1,00,000 per annum The annual Medical reimbursement limit set at a sum of Rs 15,000 per annum under Section 17(2) of the Income Tax Act which was fixed in April 1999, has been merged along with conveyance allowance into a composite standard deduction limit of Rs 40,000.
Given the significant rise in cost inflation index in general (70 per cent over the last 5 years) and medical inflation in particular, the medical reimbursement deduction needs to be re-introduced and the annual limit needs to be enhanced to not less than Rs 100,000 per annum.
Restoration of weighted deduction under Section 35AD
Currently, a weighted deduction under section 35AD of the Act in respect of the capital expenditure (other than land/ goodwill/ financial instrument) is available to a taxpayer engaged in building and operating a hospital with at least hundred beds which has commenced its operations on or after April 1, 2012. However, with effect from April 1, 2017, deduction under section 35AD of the Act is restricted to 100 per cent of the expenditure only. A sudden withdrawal from April 01, 2017 has led to a significant negative impact on the initiatives that have already commenced on these fronts.
Given the urgent need to add bed capacity in the sector, the 150 per cent weighted deduction scheme should be allowed to continue for the healthcare sector for an additional 10 years at least.
Simplification of the tax regime in respect of real estate investment trusts (REITs)/business trust
Under the revised scheme announced in the last Union Budget, there would be no capital gains tax exposure for the sponsor at the time of the listing of the units or subsequent divestment (if securities transaction tax has been paid). Further the REIT/business trust would not suffer tax on the rental income distributed, though individual investors in the REIT would be liable to pay tax on the income distribution by the REIT. Simplification of the tax regime would accelerate growth and ensure scale, speed and skill sets for setting up more hospitals and help attract more FDI inflows. It is recommended that there should be no capital gains tax incidence at the time of setting up of a REIT/business trust as well for individual investors on the income distribution by the REIT/Business Trust.
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