The Hindu Business Line : Medicines as `merit' goods

"After the sulk feeling of being relatively left out in Budget 2006, the pharma and biotech players are hoping that Budget 2007 will address their key demands," says Mr Hitesh Sharma, Partner, Ernst & Young. He reasons that pharmaceuticals and biotechnology are the sunrise sectors, which are expected to contribute significantly in the India growth story.

"While regulatory and pricing policies governing these sectors do play a significant role in the functionalities and growth, it is essential to provide stimulus to pharma and biotech, to help them sustain in today's highly competitive local as well as international markets," reasons Mr Sharma, in an interaction with Business Line.

Here, he explains what the sectors expect from the forthcoming Budget.

With regard to tax holiday

Export-oriented manufacturing units, bio-technology and healthcare segments look forward to the extension of tax holiday benefits similar to what are offered by Sections 10A, 10B and 80IA of the Income-Tax Act.

Customs duty

Pharma industry bodies have asked for a reduction in the basic Customs duty to 5 per cent on drug intermediates and a basic Customs duty of 10 per cent on formulations.

Excise duty

The industry is demanding an excise duty cut on drugs from the current 16 per cent to the merit rate of 8 per cent (and zero per cent on life saving drugs) on the basis that medicines are essential commodities and should qualify to be listed as merit goods. Better affordability to the patients and not so significant loss to the exchequer forms the rationale for this plea.

Non-levy of excise duty on imported formulations has also been proposed, as stickering of these formulations should not be construed as manufacture.

One more long-sought demand has been to increase the abatement limit for computation of excise duty from 40 per cent to 45-50 per cent (in addition to the Government recently increased the abatement to 42.5 per cent).

Service tax

Clinical research organisations have been demanding complete exemption from service tax or exemption from service tax on trial runs carried for foreign sponsors, that is, export oriented.

R&D

Currently, a 150 per cent weighted deduction on research and development (R&D) expenditure is allowed for taxation purposes. Another incentive available to companies engaged in exclusive R&D is 100 per cent tax exemption for ten years — these provisions are set to expire after March 2007. Industry is demanding extension of these deductions by another 10 years, that is, till March 2017.

Further, enlarging the scope of the deduction on R&D expenditure to include investments in land used to set up research facilities and clinical trials and enhancing the quantum of deduction to 200 per cent of the R&D spend are also being envisioned. These, according the industry , are needed to help in-house research, keep pace with technological advancements and make India a global R&D hub.

D. Murali

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