R&D tax incentives to boost investments in pharma

R&D tax incentives to boost investments in pharma
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First Published: Fri, Feb 26 2010. 04 13 PM IST
Updated: Fri, Feb 26 2010. 04 13 PM IST
Mumbai: The increased weighted deduction of up to 200% on in-house research and development (R&D) expenses and the unchanged 4% excise duty on formulations are positives for pharma industry, officials and analysts said.
However, the hike in minimum alternate tax (MAT) from 15% to 18% and input duty on raw materials from 8% to 10% would neutralise the monetary impact, officials and analysts observed.
The industry was expecting added sops on R&D activities in the budget and the same is expected to boost investments in the R&D sector, both by Indian and multi-national companies, analysts and officials observed.
“The 200% weighted deduction on R&D expenses will boost investments in R&D sector,” Alok Saxena, director-international business, Elder Pharmaceuticals Ltd said.
“Firms like Ranbaxy, Glenmark and Sun Pharma invest heavily in R&D and they can reduce tax liability from this announcement,” observed an analyst with JM Financial Ltd.
“Ranbaxy and Sun Pharma spend up to Rs5 billion and Rs3.5 billion on R&D. Hence, they will have a big advantage. The move will improve R&D infrastructure in the country,” another sector analyst observed.
According to the analyst, Indian pharma companies as of now spend about 4-7% of their total revenues on R&D activities.
The government had halved excise duty on formulations to 4% from 8% as part of the three-step fiscal stimulus package announced starting December 2008.
“Excise duty maintained at 4% is a welcome step and the same would control the pricing of drugs,” another analyst observed.
“Although the weighted deduction on R&D expenses has been increased to 200%, the increase in MAT will neutralise the impact. Hence, the bottom-line of drug makers might get affected,” Rakesh Parikh, CFO, Unichem Laboratories, said.
“The budget is neutral for the pharma industry,” said Kamlesh Udani, executive director, JB Chemicals & Pharmaceuticals Ltd.
“While there will be more accumulation of excise duty and service tax (maintained at 4% and 10% respectively), the input costs will go up following the increase in input duty on bulk drugs,” Udani said.
The budget skipped the industry demand for abolition of customs duty on life saving drugs.
The allocation for Ministry of Health and Family Welfare has been increased to Rs223 billion, up from Rs195.34 billion a year ago.
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First Published: Fri, Feb 26 2010. 04 13 PM IST