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FM ready with a shot of R&D tax sops
February, 12th 2007

The Indian pharmaceuticals industry, which was disheartened by the Budget last year, is hoping for some reprieve. The industrys recommendations on sops for research & development (R&D), including a weighted average deduction of 150% on in-house R&D by five more years, were not addressed last year.

The industry had also proposed lower duty on R&D consumables and equipment, and was hoping for a reduction in excise duty on formulations from 16% to 8%. These were not touched upon in the previous Budget.

This year again, the industry wants concessions on R&D, especially in the context of the new product patent regime in force in India. Since the process of pharmaceutical discovery is lengthy and takes anywhere between 9 to 12 years, tax incentives for R&D should be extended up to March 31, 2017 from March 31, 2007, says Ranjit Shahani, president, Organisation of Pharmaceutical Producers of India (OPPI), an apex industry body. OPPI also wants international clinical trials carried out in approved hospitals here to be included in this tax incentives scheme as these are an integral part of the discovery process. OPPI also wants to harmonise the countrys transfer pricing regulations with the OECD countries. The current penalties of 100% to 300% for transfer pricing adjustments are too harsh and need to be reduced to global levels of 0% to 40%.

The industry body has called for an excise duty reduction from 16% to 8%, reduction in import duty from the current levels of 12.5% to the Asean levels of 5%. Moreover, life saving drugs should be fully exempted from customs duty (now between 5%12.5%), it has said.

Meanwhile, the Indian Drug Manufacturers Association (IDMA), in its recommendation, has asked for similar excise duty cuts. It has also sought total excise duty exemption for bulk drugs and formulations under the categories of anti-AIDS, anti-cancer, anti-TB, immuno suppressants and other life saving drugs. With India emerging as a hub for collaborative and outsourced R&D, IDMA has recommended that all excisable goods used for R&D purposes be exempted from central excise duty. Other suggestions from IDMA include exemption of physicians samples from excise duty upto 4% of sales value, allowing Cenvat credit on capital goods deployed for R&D activity within or outside the factory premises, and full exemption of import of capital goods, raw materials and reference standards for R&D, from customs duties.

Tax incentives for R&D be extended up to 2017 from 2007
Reduce excise duty from the existing 16% to 8%
Reduce import duty from 12.5% to the Asean levels of 5%
Exempt life saving drugs fully from customs duty
Mahesh Sawant, programme manager, healthcare practice, Frost & Sullivan, supports the need for incentives in R&D. Since the onset of the IPR and patent laws in India, R&D activity has increased its scope remarkably, he says. Considering this, the government should take initiatives like customs duty exemption and duty drawback to be extended to R&D consumables and waiver of excise duty for excisable goods used for R&D purpose, amongst others. The Budget should also have provisions to provide relief for 7,000 SSI units in the country by implementing the norms set by the abatement committee under the revenue department. Clinical trials business should also be classified as technical testing, scientific consultancy or business auxiliary services under the export of service rules, 2004, he adds.

The Confederation of Indian Industry, too, has demanded that the government extend Cenvat credit to R&D equipment and consumables even if a research centre is outside factory premises. It has demanded a reduction in customs duty to 5% on import of raw material for molecules for the Abbreviated New Drug Application. The Confederation of Indian Pharmaceutical Industry (CIPI), the national body representing small-scale pharma companies, has asked the government to hike abatement rate in calculating MRP-based excise duty for the SSIs. Industry body Ficci has demanded extension of 150% weighted deduction to investments made by pharma companies in land and buildings for R&D. Ficci has also asked for a waiver of customs duty, excise duty and service tax for capital goods. It has also asked the government to exempt selected life-saving drugs from customs duty.

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