Budget 2022: More misses than hits for pharma, life sciences sector?

The Indian pharmaceutical industry ranks third in the world in production by volume. Even with the ongoing pandemic, the sector saw a mammoth 200 per cent increase in foreign direct investment (FDI) in 2020-21 and a massive trade surplus of $17.5 billion. While the pandemic has provided several opportunities to the industry, it also meant that the focus of the industry was more around supporting the firefighting and hence a lot was expected from the Budget to provide impetus to focus on innovation and infrastructure. 

On the policy front, introduction of Ayushman Bharat Digital Mission would ensure universal access to healthcare facilities through digital registries of health providers and facilities. Further, National Tele-Mental Health Program would provide better access to quality mental health counselling and care services through network of 23 tele-mental health centres of excellence. Further, to promote R&D in certain sunrise opportunities, which includes pharmaceuticals, government contribution is proposed to be provided.

On the tax front, effective April 1, 2019, 100 per cent exemption is provided for receipts for medical treatment of COVID-19 for self/ family and on amount received for deceased from the employer (amounts from non-employers received within 12 months of death of a person is exempt up to Rs 10 lakh subject to other conditions to be notified by the government). Additionally, extending the last date of commencement of manufacture/production by a year from March 31, 2023 to March 31, 2024 for new manufacturing entities to claim a 15 per cent tax rate is a welcome move. 

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On the flip side, while clarifications were expected on allowability of payments towards hospitality, travel, conferences, etc., to put to rest multiple litigations on this front, the proposed amendment seeks to disallow payments made towards such expenses thereby increasing litigation on this front.

However, many long-standing asks of the sector have not been addressed including incentivising research and development and creating healthcare infrastructure which was the need of the hour to promote the sector to become 'Atmanirbhar' for India and further support the world. 

While Budget 2022 does promote universal healthcare accessibility, it seems that other asks have taken a back burner in light of various PLI schemes introduced for the sector. Lets hope that like PLI, the government will focus and address these outside the Budget but during the course of the year.  

(The author is National Tax Leader - Life Sciences practice at EY India. Rahul Kakkad, Tax Director and Raghavendra Vinayakvitthal, Tax Senior Manager at EY also contributed to the article.)

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