Minimum Alternate Tax on SEZ will stunt growth, say drug firms

For companies like drug-maker Cipla who have invested about Rs 1,000 crore in its Special Economic Zone at Indore - Budget 2011’s proposal to bring SEZs under the Minimum Alternate Tax (MAT) has proved to be a great dampener.

Companies invest for the long-term in manufacturing and in research, based on a certain tax-exemption policy of the Government, said Cipla’s Wholetime Director Mr S.Radhakrishnan, “very unhappy” with the Budget proposal to impose 18.5 percent MAT on SEZs.

Several large export-oriented companies in the country operate out of SEZs and the latest move not just adversely affects the company’s cash-flow, but profitability also gets squeezed, he said.

There are no positives in the Budget, in terms of extension of sops to Export Oriented Units and no indication, further, on whether the weighted deduction given to companies on their research-spend, at 200 percent, will also be extended beyond 2012, he added.

Echoing similar sentiments Lupin’s President-Finance Mr S. Ramesh, said that the Government was in fact taking back what it had given. For companies competing on the global stage, the MAT on SEZ will hit the profitability of companies, besides inhibiting growth, he said. Far cry from other countries that are giving manufacturing and research incentives to their companies, he said.

Several drug companies operate or have their own SEZs including Wockhardt, Zydus Cadila, Serum Institute and recent entrant, promoters of JB Chemicals.

``The levy of MAT on SEZ units is negative for the industry at large. There have been no major provisions for the pharma sector and the budget in general is a neutral one for us,’’ observed Mr Umang Vohra, Chief Financial Officer, Dr Reddy’s Laboratories Ltd.

Natco Pharma’s Chief Financial Officer Dr. P. Bhaskara Narayana also observed that the Union Budget proposals 2011-12 did not have anything for the pharmaceutical sector. “The industry was expecting support in the shape of reduced customs duties on imports of life saving medicines and lack of any mention has disappointed the industry,'' he said.