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HealthcarePost-budget sectoral point of view
Union Budget 2015Inspiring confidence,
empowering change in India
Table of contents
1. Context
2. Key policies/fiscal and tax proposals
3. Unfinished agenda
© 2015 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 3
Context
Where are weHealthcare in India has been on a constant growth trajectory, driven by the private sector bringing in leading technologies to the sector. From being a feeble social sector supported by the government in the 90s, healthcare in India is now transformed into a predominantly private players’ sector. The rising population, changing demographics, growing per capita income, increasing healthcare awareness and non-communicable disease burden is likely to promote a compounded annual growth rate (CAGR) of 15 per cent and generate a revenue of USD158.2 billion in 2017 from USD90 billion in 2014.1 The sector is being preferred for financial and strategic investments, with private equity players increasingly looking at healthcare investments and players from other sectors also diversifying into the sector. Additionally, incumbent organised players are also aggressively expanding through both organic and inorganic routes in Tier II and III cities, helping ensure greater accessibility of healthcare services in these areas. The ‘Health for All’ initiative is a positive step in the direction of ensuring that quality healthcare reaches every level of the demographic pyramid.
However, the healthcare infrastructure required to match the voluminous disease burden of the country is currently deficient.2 The sector is struggling to bridge the gap between demand for and supply of doctors, nurses and other medical staff. Accessibility and affordability of healthcare services to all sections of the society still remains a daunting task.
Key issues/challenges• Despite the growing population and disease burden, gross domestic product (GDP) spend on
healthcare remains flat over the last five years (at ~four per cent).3
• Low levels of public expenditure on healthcare (~33 per cent of the total healthcare spend) is leading to the burden of out of pocket expenditure.3
• Increasing affordability coupled with low insurance cover seems to be driving up the average cost for healthcare.
• Availability of basic infrastructure and trained human resource remains a key challenge.
• Public Private Partnerships seems to remain less lucrative for investors due to ambiguities in government policies and uncertainties involved in the transfer process.
What was expected• Granting ‘infrastructure status’ to the healthcare sector, which has been long awaited.
• Streamlining and simplifying government regulations and forming a road map to reduce inefficiencies and rebuild investor confidence.
• Increasing public expenditure on healthcare along with a boost to increase allocation to healthcare schemes which may help to help bridge the rural-urban disparity and improve availability of services in the under-served areas.
• Increasing tax holiday from the current five year plan to a ten year time frame under Section 80-IB for private healthcare providers in 'non-metros, for hospitals with a minimum of 50 beds instead of the current 100.‘
• Tax free medical reimbursement limit needs to be increased from the current INR15,000 per year.
• Providing clarity around strategies to increase availability of skilled manpower in the sector.
• Introducing an amenable tax structure to support growth and investments in the sector, for particular medical devices.
• Developing a strategic road map for adoption of technology such as telemedicine, electronic health records, mobile health, etc. to improve operational efficiency, accessibility and quality of healthcare delivery.
• Quality accreditation incentives for both public and private players.
1. “Business Monitor International, Industry Forecast - Healthcare –India”, Q1 2015, via Thomson Research, accessed March 2015
2. From the desk of director general (ceo) AHPI, AHPI, assessed March 2015
3. “World Data Bank – World Development Indicators –2005-2013, The World Bank website, accessed on 3 February 2015, KPMG in India analysis
© 2015 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 4
• Customs duty exemption on imported medical devices, all life saving drugs and life saving equipment.
• Weighted deduction on expenditure incurred on Research and Development (R&D) activities related to medical technology.
• Increasing the rate of depreciation on medical/surgical/pathological equipment to encourage up-gradation to new technologies.
• Income tax/minimum alternative tax (MAT) exemption for at least 15 years for domestically manufactured medical technology products to promote ‘Make in India’.
• Exemption from service tax: mediclaim/health insurance premium, healthcare education and training services and technical testing of newly developed drugs.
© 2015 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 5
Key policies/fiscal and tax proposals
Key announcementsPolicy1
• Allocation of INR33,152 crore to the healthcare sector.
• Identified the importance of providing medical services in each village and city.
• Affirmed the five new All India Institutes of Medical Sciences (AIIMS) to be set up in Jammu and Kashmir (J&K), Punjab, Tamil Nadu, Himachal Pradesh and Assam. Additionally, one AIIMS like institute to be set up in Bihar.
• A new scheme for providing physical aids and assisted living devices for senior citizens who are living below the poverty line.
• Proposal to enhance allocation of INR1,500 crore to Integrated Child Development Scheme (ICDS).
• Rationalised the conditions for foreign direct investment (FDI) in the medical devices sector.
• Under the ‘Swachh Bharat’ initiative, the government has announced to build six crore new toilets as a step towards preventive healthcare.
• Within the Employees State Insurance (ESI) scheme, employees will have the option to choose between ESI and other health insurance products approved by the Insurance Regulatory and Development Authority (IRDA).
Direct Tax1
• Corporate tax to be reduced from 30 to 25 per cent over a period of four years. No change in the corporate tax rate and education cess for FY2015-16. Additional surcharge of two per cent is being levied over and above the existing surcharge in case of domestic tax payers having an income over INR10 million. Maximum effective tax rate in case of domestic company and non-resident corporates would be 34.61 per cent and 43.26 per cent, respectively.
• New deduction for contribution to New Pension Scheme up to INR50,000 to be introduced.
• Meaning of company resident in India amended to include any Indian company or a company with place of effective management at any time during the year in India.
• Income tax on royalty and fees for technical services (FTS) payments made to non-residents reduced from 25 to 10 per cent.
• Scope of ‘substantial interest’ for indirect transfer of assets specified as assets in excess of INR10 crore and assets based in India represent more than 50 per cent value of the total asset value
• Transfer pricing provisions on specified domestic transactions amended to only include transactions in excess of INR20 crore.
• Provisions relating to General Anti-Avoidance Rule (GAAR) deferred for two years and prospectively applicable from FY2017-18.
• Additional depreciation at 35 per cent and investment allowance at 15 per cent for undertaking a set up in backward areas notified by the government in Andhra Pradesh and Telangana with a restriction not to transfer for five years.
• Amendment of definition of ‘charitable purpose’ to include ‘yoga’ as a specific category. Limit on activities in the nature of trade, commerce or business covered under ‘general public utility’ defined under ‘charitable purpose’ restricted at 20 per cent of the total receipts as against a fixed amount of INR25 lakh earlier.
• Exemption limit of health insurance premium paid against the earlier fixed by individuals increased from INR15,000 to INR25,000, and from INR20,000 to INR30,000 for senior citizens. Additionally, medical expenditure of very senior citizens included in the cap of INR30,000.
1. Key Features of Budget 2015-2016, Ministry of Finance, accessed March 2015
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• It is proposed to increase the limit of deduction u/s 80DD of the Income-tax Act in respect of maintenance, including medical treatment of a dependant who is a person with disability, from INR50,000 to INR75,000. It is also proposed to increase the limit of deduction from INR1 lakh to INR1.25 lakh in case of severe disability.
• Appeal to the Tribunal now permissible for not-for-profit hospitals rejected registration under Section 10(23C)(via). Mandatory filing of income-tax returns for wholly or substantially government funded hospitals covered under Section 10(23C)(iiiac).
• Contribution to Swachh Bharat Kosh and Clean Ganga fund eligible for 100 per cent tax deduction except contributions in the nature of CSR expenditure.
Indirect tax2
• Effective increase in service tax and excise duty rate.
• Service tax has been increased the existing rate of 12.36 per cent (inclusive of cesses) to 14 per cent, subsuming the cesses (effective from a date to be notified after the enactment of the Finance Bill, 2015).
• Excise duty tax has been increased from the existing rate of 12.36 per cent (inclusive of cesses) to 12.5 per cent, subsuming the cesses (effective 1 March 2015).
• Exemption from basic customs duty and countervailing duties (CVD) on an artificial heart (left ventricular assist device).
• Exemption from basic customs duty and CVD on life saving drugs and medicines imported by an individual for personal use (subject to a condition that such import would be accompanied with a certificate issued by the Director General which would be valid for a period of one year).
• Exemption from CVD and special additional duty (SAD) on specified raw materials used in the manufacture of pacemakers (subject to actual user condition).
• Reduction in basic customs duty (from five per cent to 2.5 per cent) on specified inputs for use in the manufacture of flexible medical video endoscope.
• Reduction in basic excise duty on chassis for ambulances from 24 per cent to 12.5 per cent (subject to actual user condition).
• Exemption services, including:
– Life insurance provided by way of Varishtha Pension Bima Yojna
– Ambulance services provided by way of transportation of patient
– Construction, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation or alteration of a structure, provided to the government, predominantly for use as an clinical establishment.
Impact3
• The government has allocated INR37,333 crore for health and family welfare for FY16, whereas in FY14 the amount allocated was INR33,152 crore. This is a significant reduction in the healthcare budget by 11 per cent.
• There is no increase in the 2015-16 budget allocated to the National Health Mission (NHM) (inclusive of national flagship programmes National Rural Health Mission (NRHM) and National Urban Health. Mission (NUHM, whereas in the 2013-14 budget, the government had allocated INR21,229 crore: a 24 per cent increase over the amount allocated in 2012-13.
2. Key Features of Budget 2015-2016, Ministry of Finance, accessed March 20153. KPMG in India analysis, 2015 ; About NHM , National Health Mission, assessed 1 March 2015
© 2015 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated
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• The proposal to set up five AIIMS in J&K, Punjab, Tamil Nadu, Himachal Pradesh and Assam is expected to increase the accessibility and availability of quality tertiary care in these states.
• Proposal to launch a new scheme on providing physical aids and devices for assisted living for senior citizens living below poverty line is expected to increase the sales and reach of companies manufacturing these products.
• Increased allocation to the ‘Integrated Child Development Services’ scheme is expected to improve primary healthcare services for children under six years of age and their mothers.
• Proposal to rationalise the conditions for FDI in the medical devices sector is expected to boost the manufacturing of medical devices in India, as around 70 per cent4 of the medical devices are currently imported into the country.
• Proposal to set up six crore toilets under the ‘Swachh Bharat’ initiative is expected to promote preventive healthcare practice in the country. This initiative can help the rural population improve healthcare standards.
• Choice of health insurance products vis-à-vis ESI is expected to increase the number of services available to the covered people. This can also boost other health insurance schemes.
• Increasing the limit of deduction in healthcare insurance is expected to increase the penetration of health insurance and limit the burden of out-of-pocket expense.
• Increase in the limit of tax deductions of health insurance premium for individuals brings the exemption limits in line with the current market premium rates.
SummaryThe budgets budget does not seem to contain specific programmes and policies to achieve the ‘Health for all’ vision. However, the government has initiated various steps to provide a thrust on social security to the section of the population that needs it most.
Establishment of five AIIMS like institutes can go a long way in addressing the existing challenges of quality healthcare, education and geographical disparity in the country, but this step alone may not suffice to meet the growing demand of healthcare services and workforce; the gap in healthcare delivery is especially acute at primary and secondary levels.
Further, increasing the deduction amount in health insurance premium is expected to increase the penetration of health insurance and reduce out-of-pocket expenses on healthcare.
Certain other expectations of the industry such as granting infrastructure status, increasing public expenditure on healthcare, incentives for adoption of technology, increase in the tax holiday period for setting up hospitals, robust measures to fill the human resource gap, etc. have not been met.
Encouragement to medical manufacturing under the ‘Make in India’ programme and education under the ‘skill development’ initiative was also missing.
In a nutshell, we believe that the healthcare industry did not get its due attention in this year’s budget and more needs to be done in achieving ‘Health for all’.
4. “No FDI possible in medical devices unless inverted duty structure is rationalized: AIMED”, Economic Times, 14 January 2015
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Unfinished agenda
What remains • The long anticipated amendment for providing infrastructure status to the healthcare sector remains
untouched in this budget.
• Substantial increase in public expenditure on healthcare to match the global average was missing.
• A clear road map and focus on primary health delivery remains missing.
• There is no allocation of budget for the health insurance schemes to provide insurance of minimum INR1.5 lakh to every individual.
• Introduction of health cess as suggested in the National Health Policy 2015 has not been announced.
• Financial incentives such as tax break to private players to actively participate in improving medical education across country to fill the gaps in human resources have not been announced, neither public-private partnership models to improve medical education have been encouraged.
• Increase in the tax holiday period for hospitals was not announced in the budget.
• Weighted deduction on cost borne on R&D activities related to development of medical technology.
• No clarity around strategies to increase availability of skilled manpower in the sector.
• Tax incentives to manufacture medical devices in India was not announced by the Finance Minister.
• Incentives to adopt technology such as tele-medicine, electronic health records, mobile health, etc. has not been announced in the budget.
• No clarity on budget availability for the elderly and geriatric in the FY2015-16, whereas in the 2013-14 budget a national program for the elderly was launched under which eight centres would be set up with an allocation of INR150 crore.
• Quality accreditation incentives for both public and private players, has not been touched by the Finance Minister.
• Rate of depreciation on medical/surgical/pathological equipment was not increased in the budget.
What is expected going forwardIn view of the government’s long-term vision of ‘Health for all’, it is of utmost importance that the government increase the healthcare expenditure to about 2.5 per cent of the GDP. The increased funding in the healthcare sector can help in fulfilling this vision that was highlighted in the draft National Health Policy 2015.
Private sector is a major provider of healthcare services in India and initiatives to involve the private sector in arrangements such as Public Private Partnership (PPP) need to be encouraged along with steps that will boost investments from the private sector.
Robust initiatives to increase the availability and accessibility of healthcare services, also in terms of affordability and acceptability will help India to achieve the dream of ‘Health for all’.
© 2015 KPMG, an Indian Registered Partnership and a member firm of the KPMG network of independent member firms affiliated
with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved. 9
Abbreviations
AIIMS All India Institute of Medical Sciences
CAGR Compounded Annual Growth Rate
CVD Countervailing Duties
ESI Employees State Insurance
FDI Foreign Direct Investment
FTS Fees for Technical Services
GAAR General Anti-Avoidance Rule
GDP Gross Domestic Product
ICDS Integrated Child Development Scheme
IRDA Insurance Regulatory and Development Authority
J&K Jammu and Kashmir
MAT Minimum Alternate Tax
NHM National Health Mission
NRHM National Rural Health Mission
NUHM National Urban Health Mission
PPP Public Private Partnership
R&D Research and Development
SAD Special Additional Duty
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