BUDGET - India extends tax holiday for hospitals, cuts duty

MUMBAI (Reuters) - India on Friday cut excise duty on goods produced in the drug sector and extended a five-year tax holiday to hospitals set up any where in India, except in certain urban areas, boosting shares of healthcare and drug firms.

Finance Minister Palaniappan Chidambaram, in his budget for 2008/09, proposed halving the excise duty to 8 percent.

The customs duty on certain specified life saving drugs, and its bulk drug ingredients, will be halved to 5 percent, besides exempting them from excise or countervailing duties, he added.

The industry welcomed the duty cuts and the tax breaks for hospitals.

"The reduction of the excise duty by half is a big big plus for the pharmaceutical companies. This will make medicines cheaper. It will boost demand," said Hitesh Gajaria, partner (pharma) with consulting firm KPMG India.

"Certain states provide a differential duty structure. This will reduce the duty differential."

The tax holiday that was so far given only to hospitals in the rural sector will be extended to those set up in tier I and tier II cities, Chidambaram said.

"Healthcare is finally happy. We've waited 20 years for something like this," said Sangita Reddy, executive director of operations at Apollo Hospitals.

"This will encourage big players to move into smaller cities while encouraging smaller players to start new facilities."