Union Budget 2011: Hits & misses for pharmaceuticals industry, says Rahul Patni, Senior tax professional, Ernst & Young

The Indian health sciences industry has witnessed a budget without much mention. Whilst there were few positives for this industry, the industry wish list largely remained unaddressed.         

          On policy front, the government has increased allocations for healthcare by 20% to Rs 26,760 Crores. Also, Rashtriya Swasthya Bima Yojana has been extended to cover unorganized sector workers in hazardous mining and associated industries         

          On direct tax front, the effective corporate tax rate has been reduced from 33.22% to 32.445%. However, the effect has been offset by increase in Minimum Alternate Tax ('MAT') levy from 18% to 18.5% with MAT being now also made applicable to units in SEZ.         

          Weighted deductions for payments inter-alia made to National Laboratory or a university or a specified person for the purpose of approved scientific research program increased from 175% to 200%         

          On the indirect tax side, diagnostic and testing services (other than in a government hospital) would be liable to service tax, with an effective rate of 5%. There are also some concessions for endovascular stents and some life savings drugs on the customs side and some reduction in excise duty rates of sanitary napkins and diapers.         

          Also there is a levy of 1% excise duty on vaccines, intravenous fluids and Medicaments (including those used in Ayurvedic, Unani, Siddha, Homeopathic or Bio-chemic systems), where there is no cenvat credit being availed.         
          All in all, in the wake of transitioning to new Direct Tax Code and Goods and Service Tax, the Government has not attended to the prescription for growth for the          health science industry          .