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Saturday, Mar 01, 2003

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Booster dose for drugs

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THE Budget exempts life-saving drugs attracting nil or 5 per cent Customs duty from excise duty; the list of these drugs stands expanded..

Customs duty on specified life-saving equipment has been reduced from 25 per cent to 5 per cent and exempted from CVD (countervailing duty). Equipment manufactured in India — but whose imports are exempt from CVD — are exempted from excise duty as well.

All drugs and materials imported or produced domestically for clinical trials are exempted from excise and Customs duties. Also, the Customs tariff on import of Reference Standards by the industry has been reduced from 25 per cent to 5 per cent.

With regard to research and development (R&D), the rate of depreciation has been raised from 25 per cent to 40 per cent for life-saving medical equipment. The excise duty on Nicotin Polacrilex gum is cut from 16 per cent to 8 per cent.

Basic Customs duty on glucometers and glucometer strips has been reduced from 10 per cent to 5 per cent, besides being exempted from excise duty. Cyclosporine is also exempted from excise duty.

Biotech units are to pay income-tax on a par with information technology units and will enjoy concessions under sSction 10A and 10B of the Income Tax Act.

Also, biotechnology and pharma R&D companies need not comply with export obligation of Rs 20 crore per annum to avail customs duty exemptions. Veterinary drugs saw customs duty down from 15 to 10 per cent.

A strong formulation

Analysis by Nath Balakrishnan

  • The Budget has a host of sops for the pharmaceutical industry. For starters, the reduction in peak excise duty from 30 per cent to 25 per cent could augur well multi-national companies that import a substantial portion of raw materials.

  • It is also proposed to expand the list of life saving drugs that attract a concessional Customs duty of 5 per cent. This addition might just be what the doctor ordered for a few multi-national companies. The companies that would benefit from the above move would only be known once the list of additional drugs to be made part of the expanded set is firmed up.

  • The other beneficiaries could be those companies that are into marketing diagnostics. With the proposal to reduce the basic Customs duty on glucometers and glucometer strips that are used by diabetics from 10 per cent to 5 per cent, companies that operate in the diagnostic space such as Nicholas Piramal could be among the possible gainers.

  • The other pronouncement that could give the industry a shot in the arm is the proposal to exempt those drugs or materials that are either imported or manufactured domestically for the purpose to conducting clinical trials from either customs duty or excise duty. This is likely to benefit companies across-the-board, which includes both frontline companies such as Dr. Reddy's, Ranbaxy, Cipla apart from those in the lower-rung.

  • Customs duties on import of reference standards have also been slashed from 25 per cent to 5 per cent. Reference standards are equipments that are used to produce generics for the western markets. All companies that have a significant exposure to the markets such as the US and Europe will benefit from the above move.

  • Cyclosporine has also been exempted from excise duty. Apart from multi-nationals, there are domestic players that manufacture cyclosporine.

  • The reduction in the rate of excise duty on the bulk drug, which is used in the manufacture of immune suppressants, could translate into lower costs of the formulation and benefit the end customer. One area that pharma majors could feel let down by the Budget is their expectation that the Government could extend the scope of the existing tax exemptions for scientific research.

  • The association of pharma companies had also sought for an exemption on research related overseas expenditure, apart from a waiver on customs duty for equipment used exclusively in scientific work. Such measures were expected to boost the competitiveness of the domestic industry and prepare it to face the challenges of the product patent regime that takes effect in 2005.

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