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Union Budget 2012-13: Impact on the Healthcare and Pharma sector

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Union Budget 2012-13 | Impact on the Healthcare and Pharma sector

03 | An overview 05 | Key expectations 06 | Direct tax proposals 08 | Indirect tax proposals 11 | Our offices

Union Budget 2012-13 | Impact on the Healthcare and Pharma sector

An overview


The Indian healthcare industry is witnessing growth at a rapid pace and it is expected that the sector will touch US$238.76 billion by 2020. According to the Investment Commission of India, the healthcare industry in India has experienced remarkable growth of 12% per year during the last 4 years driven by a number of factors such as increase in the average life expectancy and average income levels, and rising awareness for health insurance among consumers India provides the best-in-class treatment at affordable prices as compared to countries like USA and UK. India's private hospitals excel in fields such as cardiology, joint replacement, orthopaedic surgery, gastroenterology, ophthalmology, transplants and urology. India has also emerged as a destination for medical tourism which serves its consumers with well-educated English-speaking medical staff, state-of-the art private hospitals and diagnostic conveniences, along with a huge cost advantage over the expensive healthcare services in the Western world

Industry trend

There have also been a number of striking initiatives taken up by the Government for promoting the healthcare industry in the country. These initiatives centre on investments that are closely linked to provide better medical infrastructure, rural health facilities, etc
Road ahead India's thriving economy is driving urbanisation and creating

an expanding middle class, with more disposable income to spend on quality healthcare. The Government has developed an all-inclusive policy on healthcare which aims to achieve a remarkable growth for the industry leading to high number of compelling opportunities such as developing new infrastructure and providing novel medical equipment solutions. The sector holds enormous potential awaiting to be unleashed to its maximum potential

Union Budget 2012-13 | Impact on the Healthcare and Pharma sector

An overview

Pharma Industry trend

The Indian pharmaceutical market is expected to touch US$74 billion sales by 2020 from US$11 billion now. India's pharmaceutical market grew at 15.7% during December 2011, with growth in key therapy areas, including anti-diabetics, derma and vitamins outperforming the market. India has every chance to capitalise the opportunity to become a pharmaceutical superpower in 2020 and a hub for all pharmaceutical manufacturing and research needs India's pharmaceutical sector is gaining a global leadership position and Indian generics today constitute nearly a fifth of global supplies. India also has a vast pool of trained pharmaceutical scientists, doctors and researchers, which opens up avenues for joint collaborative research for new drug discoveries along with joint intellectual property rights

Union Budget 2012-13 | Impact on the Healthcare and Pharma sector

Key expectations

Direct tax Extension / continuation of R&D benefits

Availability of weighted deduction under section 35(2AB) of the Income-tax Act, 1961 ('the Act') to expire on 31 March 2012. The Government could consider extending the same in view of powering the research and development ('R&D') environment in the economy Extension of Government support to enable companies market their new inventions globally. Availability of additional benefits during post R&D and pre-launch stage could further assist in creation of favourable climate
Extension of deductions under the Act

Indirect tax Exemption from / reduction of excide duty, customs duties, service tax, etc

No increase in excise and service tax rates Reduction in the import and excise duties for kits and machines that are used for carrying out diagnostic tests Cut on duties on chemicals, kits and machines that are used for carrying out diagnostic tests Continue to keep diagnostics services out of service tax scope

The Government could consider extending the specific deductions available to special category states under section 80-IC of the Act set to exhaust by 31 March 2012 Relaxation of substantial expansion clause under the said section to assist small companies to ramp-up operations

Current anomaly between bulk drug and formulations to be removed to ease levy of excise duty Incentives to boost hospital infrastructure development and medical device manufacturing industry Policy to promote medical tourism

Union Budget 2012-13 | Impact on the Healthcare and Pharma sector

Direct tax proposals

Investment-linked incentives on specified business

Under section 35AD, weighted deduction of 150% of the capital expenditures are proposed to be allowed to hospitals (as against current availability of 100% deduction) subject to the following key conditions: Hospitals with atleast one hundred beds for patients, anywhere in India Hospitals commencing operations on or after 01 April 2012 Capital expenses not to include expenses on land, goodwill or financial instrument This amendment will apply in relation to AY 2013-14 and subsequent AYs.
Expenditures on in-house scientific research and development

This will apply in relation to AY 2013-14 and subsequent AYs (upto AY 2017-18)
Expenditures on preventive health check-up

Under section 80D, a deduction of Rs 5,000 is allowed for expenditure incurred during the year by an assessee on account of preventive health check-up of self, spouse, dependent children or parents The above deduction to be within the overall limits of Rs 15,000 / Rs 20,000 prescribed under the said section of the Act

Under section 35(2AB), weighted deduction of 200% of expenditures (not being in the nature of cost of any land or building) incurred on approved in-house research and development facilities, have been extended for a further period of 5 years i.e up to 31 March, 2017

Union Budget 2012-13 | Impact on the Healthcare and Pharma sector

Direct tax proposals

Advance Pricing Agreements (APAs)

APA is an agreement between a taxpayer and a taxing authority on an appropriate transfer pricing methodology for a set of transactions over a fixed period of time in future. APAs offer better assurance on transfer pricing methods and are conducive in providing certainty and unanimity of approach. The key proposals of APAs are as follows: Applies to any person undertaking an international transaction Agreement to determine or manner to determine Arms Length Price ('ALP') with necessary adjustments as prescribed APA to be valid for such period specified (not to exceed 5 consecutive previous years) APA to be binding only on the taxpayer and Commissioner in respect of the transactions entered The Central Board of Direct Taxes ('CBDT') is empowered to prescribe scheme governing procedural aspects for obtaining APA and any other matters pertaining to APA

These provisions would be applicable with effect from 1 July 2012. APAs would predominantly assist healthcare and pharma companies to considerably reduce uncertainty on taxation of such international transactions.

Union Budget 2012-13 | Impact on the Healthcare and Pharma sector

Indirect tax proposals

Budget scenario

Central excise

The pharmaceutical and healthcare sector is on the threshold of greatness. India is fast becoming a hub for medical tourism and facilities in India are considered at par with the best across the globe. The Finance Minister seems to share the sector's optimism and combating malnutrition and female healthcare was clearly on the agenda.
Service tax

Basic rate of duty increased from 10% to 12% and merit rate increased from 5% to 6% Exemption from Excise Duty/ Countervailing duty ('CVD') is proposed on specified life saving drugs
Customs duty

Reduction in BCD on the following items:

Probiotics Life saving drugs Iodine Isolated soya protein Soya protein concentrate

Rate of Service tax is proposed to be increased from 10% to 12% Introduction of the Negative list concept Specific exemption provided for healthcare services

Current rate
10% 10% 5% 15% 30%

Proposed rate
5% 5% 2.5% 10% 10%

Union Budget 2012-13 | Impact on the Healthcare and Pharma sector

A comprehensive suite of tax and regulatory services

The changes in the tax and regulatory environment constantly challenge large and growing businesses, particularly those operating internationally. How your business meets this challenge can have a significant impact on your bottom line. The more your business grows, the more complex tax requirements can become.
Grant Thornton can help you minimise your tax exposure and highlight the risks presented by constantly evolving and increasingly complex legislation. Drawing on our knowledge and understanding of tax regimes in India and around the world, we offer timely information and independent advice. Through legitimate planning, we consider issues that arise within specific types of tax, as well as the tax implications of a new project, or a change to the business. We work with you to develop bespoke tax-planning strategies suitable for your specific business structure, and our solution-oriented approach is designed to help you understand and minimise the tax challenges your business faces.

About Grant Thornton India LLP Grant Thornton India LLP is a member firm within Grant Thornton International Ltd. The firm is one of the oldest and most prestigious accountancy firms in the country. Today, it has grown to be one of the largest accountancy and advisory firms in India with nearly 1,100 professional staff in New Delhi, Bangalore, Chandigarh, Chennai, Gurgaon, Hyderabad, Kolkata, Mumbai and Pune, and affiliate arrangements in most of the major towns and cities across the country. As a member firm within Grant Thornton International, the firm has access to member and correspondent firms in over 100 countries, offering our clients specialist local knowledge supported by international expertise and methodologies.

Union Budget 2012-13 | Impact on the Healthcare and Pharma sector


A comprehensive suite of tax and regulatory services

Direct Tax and Regulatory Services

direct tax and regulatory advisory & statutory compliances representation & litigation support international tax advisory & planning regulatory advice and support under - Foreign Exchange Management Act (FEMA) - Foreign Direct Investment (FDI) guidelines - Reserve Bank of India (RBI) - Securities and Exchange Board of India (SEBI) - Companies Act inbound investment advisory & entity set-up outbound investment & cross-border transaction advisory tax diagnostic reviews tax due diligence expatriate tax advisory & compliance services
Indirect Tax Services

compliance assistance representation & litigation support review/ health check/ VAT audit tax due diligence

transaction implementation assistance (including post-implementation assistance)

US Tax Services

Transfer Pricing Services

local documentation studies (including issuance of an Accountants Report) - functions & risk analysis - comparability analysis multi-jurisdictional documentation studies planning study (margins reviews for budgeting, new transaction planning) supply chain re-structuring representation & litigation support (including controversy management) review of agreements from a transfer pricing perspective structuring cost sharing arrangements for inter-company transactions
Transaction Tax

US inbound services transaction related services entity taxation services individual taxation services

Compliance & Outsourcing

maintenance of books of accounts payroll processing, including withholding tax computation and deposit of withholding tax with the Government Treasury as well as filing associated returns accounts payable/ receivable processing banking support preparation of Final Accounts audit support secretarial support

advisory & strategic consulting in relation to Customs, Central excise, Service Tax, Value Added Tax (VAT), Sales Tax/ Central Sales Tax, Foreign Trade Policy, Special Economic Zones and other allied legislations

merger & acquisition advisory services transaction structuring & management (including corporate re-organisation & financial structuring advisory)

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Union Budget 2012-13 | Impact on the Healthcare and Pharma sector


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