MARCH 01, 2010

Snap shot of post Budget changes in Medical devices sector

By Anil Menon

INDIA Budget can never be complete without its focus on the Health Sector. Though not much has impacted this sector from the Direct tax side, this time around there has been tinkering in the indirect tax rates in relation to the medical devices sector.

To give a quick background: Based on information available in public domain, the Finance Minister had to deal with diametrically opposite concerns regarding the said sector before the Budget. The Indian medical device manufacturers do not generally cater to the high end segment and are apparently engaged in low-value products like syringes, catheters, blood collection tubes, medical implants/ equipment etc. The local manufacturers of medical devices (which is an emerging Industry) had represented strongly for increase in customs duty rate on import of medical devices so as to bolster their growth and be able to ward off competition from key brands which deal in the high value/premium segment/ equipments. It was represented that in order to discourage imports, it would be pertinent to levy of higher Customs duty on import of medical devices into India.

On the other hand, the Department of Pharmaceuticals, Government of India had reiterated the importance of reduction in customs duty rate to make the imported medical devices less costly in the local market. This was in consonance with its vision to ensure abundant availability of good quality pharmaceuticals of mass consumption, at reasonable prices within the country and more so from a public health point of view.

However both parties were of the view that imports of parts/ accessories for use in manufacture of medical devices in India should attract lower duty of customs.

Eventually this is how the Budget panned out for the medical devices sector

Customs duty on all medical, surgical, dental and veterinary equipments, etc has been reduced from 7.5% to 5% with complete exemption from levy of Special Additional Customs Duty (‘SACD'). This was clearly in lines with the requirement of the Department of Pharmaceuticals.

Import duty of parts and accessories of above equipments has also reduced accordingly.

The effective customs duty on import of medical devices has thus been reduced from a generic peak rate of 16.78% to 9.2%.

Specified inputs used in the manufacture of orthopedic implants have been exempted from basic customs duty subject to actual user condition

Also appreciating the representation of the local medical devices manufacturers to abolish a host of duty exemptions on various medical devices, concessional / nil customs duty presently availed by number of notified medical devices related to ophthalmic, ENT etc have been withdrawn in this Budget. This would give much needed level playing field for local medical device manufacturers.

Import of hospital equipments (including spare parts / accessories etc) for use in specified hospitals with were earlier exempted from levy of CVD have now been imposed with 4% CVD.

Similar treatment has been given to import of life saving medical equipments including accessories/ spare parts which would now attract CVD of 4% instead of NIL rate. This exemption is now limited to import of life saving medical equipment including accessories/ spare parts if imported for personal use only.

Excise duty at the rate of 4% has been imposed on blood glucose monitoring system (Glucometer).

The CVD exemption granted to test strips and patent ductus arteriosus/ atrial septal defect occlusion devices in the last budget has been withdrawn.

(The authors are associated with Spark Consultancy )