Proving to be pragmatic yet again, Union Finance Minister Pranab Mukherjee left the pharma sector unchanged and lacklustre at the same time while hiking allocation for health, in the budget proposals for the next financial year of 2011-12.

Presenting the budget in the Parliament today, he hiked the Plan allocation for health by 20 per cent in continuation of the commitment of the government to push inclusive growth. However, healthcare industry however will not be so much enthused, as it will bear some additional burden in the form of service tax.

Though the pharma sector did not get anything to cheer about, the medical devices sector managed a bit of consolation as the Minister announced reduction of import duties on specified raw material for the manufacture of syringes and needles to 5 per cent basic and 4 per cent CVD.

“I propose to step up the plan allocations in 2011-12 by 20 per cent to Rs. 26,760 crore. The Rashtriya Swasthya Bima Yojana has emerged as an effective instrument for providing a basic health cover to poor and marginal workers. It is now being extended to MGNREGA beneficiaries, beedi workers and others. In 2011-12, I propose to further extend this scheme to cover unorganized sector workers in hazardous mining and associated industries like slate and slate pencil, dolomite, mica and asbestos etc,” he said on the health front.

“I imposed service tax in 2010-11 on health check up or treatment. This levy has resulted in differential treatment between persons who make payments themselves and others where payments are made by an insurance company or a business entity. Thus, I propose to replace it with a tax on all services provided by hospitals with 25 or more beds that have the facility of central air-conditioning. Though the tax is on high- end treatment, I propose to sweeten the pill by an abatement of 50 per cent so that the actual burden is kept at 5 per cent of the value of service. I also propose to extend the levy to diagnostic tests of all kinds with the same rate of abatement. However, all Government hospitals shall be outside this levy,” the minister said.

Though the pharma industry, especially the small scale sector, expected some boosting measures, nothing has come in the budget. Even though the Pharma Department also was keen to make all cancer drugs exempted from excise duty, it was not included by the finance minister in the proposal. However, biggest relief for the industry should be that the budget did not hike the excise duty on drugs and did not roll back the stimulus package, though there were some apprehensions in this regard.

The Minister, on the other hand, changed central excise duty exemption structure. He said that there are 370 items that enjoy the exemption from Central Excise Duty but are chargeable to VAT.  He proposed to withdraw the exemption on 130 of these items. The remaining 240 items would be brought into the tax net when GST is introduced.  A nominal 1 per cent central excise duty is being imposed on 130 items.  However, it is not known whether the essential drugs like those for HIV which enjoyed exemption would be included under these 130 items.

Though the industry always wanted weighted deduction upto 300 per cent on research, the Finance Minister did bring some encouragement. “In this decade of innovation, I enhanced the weighted deduction on payments made to National Laboratories, universities and Institutes of technology, for scientific research, to 175 per cent in the last budget. I propose to further enhance this to 200 per cent,” he said.

For the pharma exporters, like in all other fields also, will have something to look forward, as the FM promised to introduce self-assessment in customs. “Under this, importers and exporters will themselves assess their duty liabilities while filing their declarations in the EDI system. The Department will verify such assessments on a selective system driven basis,” he said.