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Drug industry looking for more tax benefits on R&D spend

Drug industry looking for more tax benefits on R&D spend
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First Published: Sat, Jan 12 2008. 12 22 AM IST

Clinical studies: A file photo of a technician at Dr Reddy’s Laboratories biotech lab outside Hyderabad. Top Indian drug makers are seeing increasing research spending to try and add to their intellec
Clinical studies: A file photo of a technician at Dr Reddy’s Laboratories biotech lab outside Hyderabad. Top Indian drug makers are seeing increasing research spending to try and add to their intellec
Updated: Sat, Jan 12 2008. 12 22 AM IST
New Delhi: The Indian pharmaceutical industry is trying a new lobbying route ahead of the Budget by sending its wish list to the department of science and technology (DST) with an eye on more tax incentives for reseach-oriented drug makers.
This, even as the ministry of chemicals and fertilizers, the administrative department for the Rs55,000 crore drug industry in the government, is championing the cause of making affordable drugs and has asked the finance ministry to exempt all the essential drugs from excise duty.
“The department (of chemicals and petrochemicals) has asked for total excise exemption on 354 drugs specified in the national list with essential medicines. On the rest, the demand is halve the duty to 8%,” claimed an industry executive who is familiar with the wish list, but didn’t want to be identified.
Clinical studies: A file photo of a technician at Dr Reddy’s Laboratories biotech lab outside Hyderabad. Top Indian drug makers are seeing increasing research spending to try and add to their intellectual property.
The ministry has found support from lobbying groups, the Organisation of Pharmaceutical Producers in India (OPPI), Federation of Indian Chambers of Commerce and Industry (Ficci) and Confederation of Indian Industry on reducing the excise from 16% to 8%.
The ministry has also reiterated earlier demands for increasing the exemption limit for small scale industries from Rs1.5 crore to Rs3 crore and extending the tax exemptions on research spend to 2017, unsuccessful demands sought from the last two budgets.
“We have been trying through our ministry for the last two years, but it hasn’t cut much ice. This time, we presented our demands to DST and they have agreed to take it up on our behalf,” claims D.G. Shah, secretary general of the Indian Pharmaceutical Alliance (IPA), an industry lobby of top Indian drug makers, most of whom are seeing increasing research spending to try and add to their intellectual property.
The top 10 Indian drug companies, which spend between 5% and 6% of their revenues on research, cumulatively spent about Rs1,800 crore in 2006-07.
The alliance, in its submission to DST as well as the ministry of chemicals and petrochemicals, has asked for increasing the rate of weighted deduction from 150% to 200% and providing it for 10 years. The government has allowed a deduction of 150% of the expense on “in-house research and development” while calculating tax obligations, through March 2012.
IPA’s Shah says the industry would now like all R&D expenses, including those incurred outside the premises for clinical trials, on bioequivalence studies and costs of regulatory approvals should qualify for a tax deduction.
OPPI, which represents the Indian arm of multinational drug makers that also repatriate profits to parent companies, is seeking a softer penalty structure in transfer pricing adjustments. The current provisions provide for “harsh penalties of 100-300%,” says OPPI’s submission, and need “to be toned down” as transfer pricing is highly subjective. Globally, penalties range from 0-40%, it adds.
Transfer pricing refers to the pricing of goods, services and intellectual property transacted within a company or its affiliates.
Governments regulate such pricing to deter companies from charging rates that are not market-determined. For instance, several multinationals have been found to charge high royalties for transfer of technology to units with an aim to reduce taxable profits paid in overseas markets.
The association, along with Ficci, has also asked for custom duty exemption on all life-saving drugs rather than those on a specified list.
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First Published: Sat, Jan 12 2008. 12 22 AM IST