The Finance Minister has an uphill task, given the current global economic uncertainty and its impact on India. But bold steps are required as the world watches.

Implementation of GST is key and medicines should attract the lowest rate of GST, given their essential nature.

But the big demand from Budget 2016 is simple: spend more on healthcare and pharmaceuticals. Expand the healthcare budget, incentivise new investments to create medical infrastructure and pharmaceutical manufacturing and ramp up existing public health infrastructure. This will lead to strong, more accessible, affordable and effective healthcare in the country.

Tax anomalies

The Budget should focus on correcting certain tax anomalies in this industry. APIs (Active Pharmaceutical Ingredients) are taxed at 12.5 per cent, though finished medicines attract a 6 per cent excise.

This creates an ‘inverted duty structure’ where the rate of duty on the principle raw material is twice the rate on the finished product, resulting in huge accumulated unutilised Cenvat credit which culminates into higher price of pharma products. The government should reduce the duty on APIs to 6 per cent.

Weighted deduction under Sec 35(2AB) of the Income-Tax Act should be allowed on: analytical and clinical drug trial expenses incurred outside in-house research and development (R&D) centres in and outside India; consultancy fees, salaries, etc. related to R&D; filing fees for patent applications outside India, and patent litigation expenditure incurred within and outside India.

There should be provisions for free transfer of credit for manufacturing units across States. This would facilitate manufacturing facilities to be set up based on business requirements than tax considerations. Medicines on the Essential List should be exempt from GST to ensure that taxes and duties paid on input and services linked to making these medicines do not impact their price. Supplies of goods and services to recognised R&D facilities should be zero-rated under GST to encourage innovation and growth. This would resonate with the government's vision to make India an innovation hub.

(The writer is Chief Financial Officer with Lupin Ltd)

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