The Lifesciences sector has been at the forefront while managing the COVID crisis which has contributed to India being dubbed as the "pharmacy of the world". The massive vaccination drive has helped economic activity resume to almost normal levels....
The upcoming Union Budget 2022-23 due shortly, will be the second Budget to be presented under the full shadow of COVID-19. Therefore, a few will disagree that the Lifesciences and healthcare sector (LS Sector) will certainly be one of the focus areas.
The Lifesciences sector has been at the forefront while managing the COVID-19 crisis which has contributed to India being dubbed as the “pharmacy of the world”. The massive vaccination rollout has definitely helped economic activity resume to almost normal levels. As health and wellness take centerstage, we could expect continued efforts by the government to cater to improving access and affordability of public healthcare. To enable access to better facilities, we could expect Budgetary allocations towards Rashtriya Swasthya Bima Yojana (RSBY) for Below Poverty Line (BPL) families, increased efforts in setting up hospitals in rural areas, and investing in training and medical infrastructure. Further, to address the shortage of skilled healthcare manpower in the country, the budget could allocate funds towards medical education programmes.
Last year, we witnessed the launch of Production Linked Incentives Scheme (PLI) schemes with utmost rigor with its focus on APIs (Active Pharmaceutical Ingredients), intermediates/Key Starting Materials (KSMs) and formulations to help build scale for India’s pharmaceutical sector. This is expected to create a global dominance for the sector and generate employment opportunities for the youth. The PLI Scheme for medical devices manufacturing proposes a financial incentive to boost domestic manufacturing and attract large investment in medical devices segments. Developing more medical device parks could prove to be a cost-effective ecosystem for the country.
Recently, pursuant to the PLI scheme for the pharmaceutical industry, the Ministry of Chemicals and Fertilizers, announced selection of 55 applicants in three categories. The Indian government will provide financial incentives aggregating approximately 15,000 crores over a six-year period for each participant based on their meeting the defined incremental sales and investment criteria.
As per the Ministry’s press release in November 2021, the PLI scheme aims to enhance India’s manufacturing capabilities by increasing investment and production in the sector and contributing to product diversification to high-value goods in the pharmaceutical sector. Further, it seeks to create global champions out of India who has the potential to grow in size and scale using cutting-edge technology and thereby penetrate the global value chains.
Effective implementation of the PLI scheme would go a long way in achieving its stated objectives to further develop the sector. Further, it will be worthwhile for the government to make more budgetary allocation for the Pharma PLI scheme and launch Phase-3 of the scheme so that some pharma players and products such as capsules, vegetable capsules, etc., which missed out in the earlier phases could also avail the benefits.
Immunization is vital for the country to fight COVID-19 and future pandemics. Thus, having a reliable medical cold chain that is different from commercial refrigeration is imperative. Reduced GST rates and import duties on critical components for manufacturing medical cold chain units and production linked incentives could help augment growth. Further, reduction of GST on the lab reagents and consumables, lifesaving and essential drugs and rationalization of import duties on such equipment would encourage the development of more quality diagnostics.
With e-pharmacies now gaining clout and patient data being a key lever, there is an expectation to have a proper framework of regulations in place for online pharmacies taking into account various distinctions that exist between offline and brick and mortar chemists/pharmacies.
Pharma industry being an R&D intensive industry, increasing spending on research and incentivizing R&D is a much-needed move as India needs a big push to move towards innovation in pharma. Therefore, additional tax deductions for R&D activity to further support greater investments in new drug developments will be helpful.
In addition, below are a few tax amendments that benefit other industries which could benefit the Life Sciences sector as well:
- Clarity on tax treatment for the proposed direct listing of shares on overseas stock exchanges;
- Reduction in rate of taxation for new/existing units of existing corporates for a boost in manufacturing in the LS sector;
- Introduction of a permanent dispute resolution process that can help the government recover tax dues locked up in litigation and mitigate pendency in the Courts;
- Allow depreciation on acquisition of goodwill through taxable transactions such as slump sale;
- Widening the transfer pricing arm’s length range in India to allow use of 25th to 75th percentile in line with the global standards;
- Launching a specific incentive scheme for the bio-technology R&D sector based on investment and service volume criteria;
- Modifying the Customs Act to provide for a specific time limit to pass the refund order; and
- Issuing suitable clarification to do away with the requirement to reverse input credit, in respect of goods given as part of marketing schemes such as samples, marketing material, brand reminders, POS etc., commonly given in the pharma industry.
The above initiatives can go a long way to kick-start the ambition for self-sufficiency, innovation and PLI schemes to integrate India with global supply chains, thus helping the Indian life sciences sector gain competitive edge in the global landscape.
– The article is authored by Santosh Dalvi, Partner and Deputy Head, Indirect Tax, KPMG in India, and Vijay Chawla, Partner & Head – Life Sciences and Head – Risk Advisory for KPMG in India. With inputs from Ravi Gupta, Chartered Accountant.
Disclaimer: The views expressed in this article are those of the author and do not necessarily reflect the views of the Economic Times – ET Edge Insights, its management, or its members.
This Article was first published on KPMG India
