Taxing Healthcare: Health cess saps India’s health

March 19, 2020 4:15 AM

The 5% cess will cripple India’s healthcare system as it disincentivises R&D and increases patients’ costs.

health, health sectorImports dominate a major share of the medical device market.

By Amir Ullah Khan

With the World Health Organization (WHO) declaring the novel coronavirus outbreak a pandemic, there have been questions about India’s health infrastructure, and the quality of medical devices. Many believe that the time is not right to burden patients with an additional health cess that makes healthcare unaffordable. There is a dire need for the government to consider revoking the health cess announced in the recent budget session. Additionally, the government needs to figure an alternative—say, taxing other hazardous products—to receive funds to strengthen the overall healthcare infrastructure.

To achieve the twin objectives of giving an impetus to the domestic industry and generating resource for health services, the Centre has decided to levy an additional health cess of 5% on specified imports of medical devices (on the value of goods imported). This is contrary to the government’s aim of providing affordable healthcare as India imports nearly 80% of its medical devices, and is particularly dependent on imports for higher-end products, including medical imaging, cancer diagnostics, ultrasonic scans, and PCR technologies. Therefore, an additional tax will increase the cost of treatment for patients as medical devices and instruments will become costlier.

Imports dominate a major share of the medical device market. Medical device imports went up 24% in FY19, comprising imports from the US, Germany, China, the Netherlands, and Singapore. As per reports, German imports saw a 22% growth, while this was 97% for those from Singapore. India’s growing import numbers largely come from medical equipment like MRI and ECG apparatus, heart stents, knee stents, diagnostic items, suture needles, hearing aids, etc. In fact, as per a Business Standard report, knee implant imports grew 20% in FY19. When an additional health cess is levied on these devices, the prices are bound to rise, with patients bearing the cost.

The move would hurt the sector, which is already reeling under price capping on premium devices, and impact investments in research and innovation by the global medical devices companies in India. At a time when the world is riding on the innovation curve, India might lose out on capitalising on the industry’s best medical devices. For example, a cardiac stent depends on its material, thickness, design, and clinical relevance. Global players spend enormous manpower in developing these stents, ensuring successful patient outcomes by addressing different patient profiles. Here is an unmitigated disaster—we are disincentivising innovation with heavy taxes, and additional costs.

Nearly six million people in India die from non-communicable diseases annually. To solve India’s unmet healthcare needs, we need to ensure effective and innovative use of medical technology, supported by policies that encourage innovation. To cater to evolving patient needs, the future of Indian healthcare must include advanced technologies and new super-specialty facilities—both will depend on the import of high-end medical equipment, which accounts for over 65% of the entire market. Evidently, there is a scarcity of cost-effective products and solutions in the medical technology industry—indeed, many medical products are only available in selected parts of India. Therefore, it is imperative to encourage an environment that enables global research-based companies to bring their innovation to India.

Stable market environment is key to driving future investments in R&D, manufacturing, and other services to enable India’s medical technology industry to meet current and future needs. Also, India can’t achieve quality healthcare for all without capacity-building of various subsets of the healthcare system. We require more doctors, hospital staff, better quality medicines, and latest technologies to improve patient outcomes, and reduce the country’s overall disease burden.

The writer is Development Economist and Former Senior Policy Advisor, BMGF. Views are personal

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