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Diagnostics industry seeks correction of inverted duty structure to facilitate import substitution and self-reliance

Currently, the basic customs duty on diagnostics instruments is 0% while that on the components and spare parts ranges from 7.5% to 15%. This represents a classic case of the inverted duty structure.

Diagnostics industry seeks correction of inverted duty structure to facilitate import substitution and self-reliance
In reagents, India is 50% self-reliant due to enabling factors like availability of know-how and majority of raw materials being locally available. This is further supported by the need for low capital investment and labour cost.

The Indian in-vitro diagnostics (IVD) industry has sought correction of the inverted duty structure to facilitate import substitution and increased self-reliance for IVD instruments through domestic manufacturing.

The IVD industry encompasses diagnostics tests performed outside the body of the patient, in pathology laboratories, hospitals and blood banks. The segment includes tests for Glucose, Cholesterol, Malaria, Dengue, HIV, Hepatitis, Complete Blood Count, Cancer and Covid -19 to name a few.

Correction of the inverted duty structure was left unaddressed in the new union budget 2022.

“Inverted duty structure correction would have encouraged local manufacturing of diagnostics instruments thereby providing the much needed impetus to ‘Make in India’ in this segment, which is currently as high as 80% dependent on imports”, according to Association of Diagnostics Manufacturers of India (ADMI).

The term ‘Inverted Tax Structure’ refers to a situation where the rate of tax on inputs purchased is more than the rate of tax on outward supplies.

“Inverted duty structure as of today is not conducive to local manufacturing. If this was to be corrected, the import duty on finished products should be 10 to 15% and that on the components, should be as low as 0 to 2.5%. This will lead to an increase in the cost of the finished product and lower the cost of the components,” according to a local manufacturer.

“The Indian IVD industry would continue to implore that the import duty on instruments be increased to 10 to 15% during the next couple of years and that on all components and spare parts be reduced to 2.5%. This would encourage the domestic industry to make use of the Production Linked Incentive (PLI) scheme, introduced by the Government and help boost manufacturing of instruments locally, at affordable prices,” ADMI further stated.

If the inverted duty structure is corrected, it would shift the mindset of local manufacturers towards making instruments locally. There are two major components of IVDs – Reagents and Instruments. “In reagents, India is 50% self-reliant due to enabling factors like availability of know-how and majority of raw materials being locally available. This is further supported by the need for low capital investment and labour cost. This, however, is not the case with instruments,” according to Veena Kohli, President, ADMI.

“Currently, the basic customs duty on diagnostics instruments is 0% while that on the components and spare parts ranges from 7.5% to 15%. This represents a classic case of the inverted duty structure. It was disappointing to see this long-standing anomaly not being addressed in the new budget,” she added.

Industry experts have suggested that healthcare services need to be brought under the GST framework with one percent levy so that they can avail the input credit. This will eventually bring down the overall cost of healthcare services, thus benefiting the citizens of the country.

“Consumer spending on medical diagnostics solutions and services is still low in India. The government can drive down GST on a range of diagnostic solutions to make them accessible to a larger section of the society,” according to an industry official.

“The technology transfer in the IVD industry is yet to gain the desired pace because of the high cost. As technology transfers from developed countries boost the Make In India initiative in the diagnostics sector, the government needs to launch a special scheme to offer incentives or funding support to IVD companies so that cost of technology transfer comes down,” said Dr Veeraal Gandhi, Chairman and Managing Director, Voxtur Bio Ltd.

Dr Gandhi suggested that import dependence is another key issue that the domestic medical diagnostics industry is currently battling with. To make the industry self-sufficient and encourage domestic manufacturing, the government can hike customs duty on finished medical devices and at the same time decrease customs duty on Semi Knocked Down (SKD) imports.

“The government can offer support to develop manufacturing and R&D facilities for various medical equipment including IVD solutions. In addition, the government needs to encourage private sector participation in healthcare infrastructure development in tier – 3 and 4 cities by offering tax holidays or incentives,” Dr Gandhi said.

“Moreover, healthcare services need to be brought under the GST framework with one percent levy so that they can avail the input credit. All these measures will eventually bring down the overall cost of healthcare services, thus benefiting the citizens of the country,” he concluded.

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