The Hindu Business Line : Wish-list: Pharma sector divided on excise duty relief

Budget demands
IDMA wants excise duty, currently at 16 per cent, to be halved.
Chemicals and Fertilisers Ministry urged to extend the income-tax sops on research for 10 more years.

P.T. Jyothi Datta

Mumbai, Feb 10 They speak in one voice when it comes to seeking tax sops for pharmaceutical research from the forthcoming Union Budget.

But the estimated Rs 68,000-crore pharmaceutical industry is a divided house when it comes to the 16 per cent excise duty levied on drug companies that are not in designated tax-free zones.

“We are pushing hard to have excise duty halved. To have a level playing field for the several small and medium players who are losing out to the tax-free zones,” said Mr Daara Patel of the Indian Drug Manufacturers’ Association (IDMA), a platform representing a large number of medium and small companies.

If the Centre is keen on making medicines affordable, it should cut excise duty on medicines, and the benefit would get passed on to the consumer, he added.

Until quite recently, a similar demand had in fact been made by the entire pharmaceutical industry.

But with no response from the Finance Ministry, several big pharmaceutical companies went on to set up one or more manufacturing facility in tax-free zones such as Baddi in Himachal Pradesh, Uttarakhand, Jammu and Sikkim.

Such a capital-intensive move was however difficult for medium and small players, who have in some cases invested in shaping up their existing plants to meet the mandated Good Manufacturing Practices norms, said an industry representative.

So despite veiled suggestions from big companies, which source medicines from the smaller companies, to move to tax-free zones, small players are unable to do so, he explained.

As a result, clusters in Gujarat and Maharashtra are under pressure; small and medium manufacturers are not able to compete on price and face closure as their units become unviable, he added.

But another pharma representative speaking for big domestic companies put it more diplomatically.

Tax-free zones were created in locations that needed more development compared to the rest of the country. These sops were not forever, and would cease in 2010, he added.

Research

The divide in pharmaceutical industry, however, dissolves when it comes to seeking extension on income-tax sops and research incentives.

The sector has asked the nodal Chemicals and Fertilisers (C&F) Ministry for a 10-year extension of the income-tax sops that came to an end in March 2007, said Mr D.G. Shah of the Indian Pharmaceutical Alliance.

In fact, the C&F Ministry too has put forth a similar request to the Finance Ministry in its pre-budget exercise, a Ministry official told Business Line.

Drug companies are looking to invest more in research and want an environment of certainty, Mr Shah said.

At present, drug-makers invest between five and 10 per cent of their sales on research.

And companies are increasingly looking at research-driven strategies to cope with the product-patent regime that disallows generic-drug companies from making copies of new drugs.

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