Pharma body pitches for tax sops, fixing duty anomalies
1 min read . Updated: 12 Jan 2023, 12:30 AM IST
PremiumPharmaceutical Export Promotion Council of India (Pharmexcil), a body set up by the ministry of commerce and industry, has recommended several tax breaks to be included in the Union budget for FY24 and to correct certain duty anomalies to make the pharma industry more competitive
Pharmaceutical Export Promotion Council of India (Pharmexcil), a body set up by the ministry of commerce and industry, has recommended several tax breaks to be included in the Union budget for FY24 and to correct certain duty anomalies to make the pharma industry more competitive.
The export promotion body has sought higher income tax incentives for research and development (R&D) projects approved by the government, a call that has been backed by several industry leaders.
The government has been reducing tax exemptions as part of its overall tax policy to streamline the tax system and reduce litigation.
The export body has sought a weighted deduction of 200% of a company’s research spending while computing taxable income. At present, it is allowed at 100%, down from 150% earlier.
Industry leaders are also pitching for more incentives for drug research and development.
Nikhil Chopra, chief executive and whole-time director of JB Pharma, said that the next Union budget should focus on measures to facilitate ease of doing business and contribute to the pharma industry’s long-term growth.
“There is a need to look at tax breaks, which would further help fast-track the industry and fuel the much-needed innovation and research and development," Chopra said.
“To increase the focus on innovation, tax incentives could pave the way for a synergistic relationship between the government and the pharma industry," said V.S Mani, executive director and global chief financial officer, Glenmark Pharmaceuticals.
Pharmexcil has also proposed to introduce new R&D incentive schemes which it said are administratively easy to implement.
Indian pharmaceutical industry spends, on average, around 5% of its sales on R&D, compared with 10-15% by companies in the developed world.
“India has the potential to be a key global R&D hub," said Pharmexcil.
It has also proposed reducing the basic customs duty on raw materials imported for manufacturing antibiotics from the existing 7.5% to 5%.
The pharma export body also recommended that the government should correct the inverted duty structure, a tax anomaly where raw materials face higher tax burden than finished products.
The export promotion body said that raw materials for pharmaceuticals getting taxed at 18% goods and services tax (GST) and finished formulations at 12% or 5% leads to accumulation of tax credits, as getting refunds entails a cumbersome procedure.
Small businesses face hardship on account of this as their working capital gets blocked, Pharmexcil said in its recommendations. This would also require approval from the GST Council.
A reduction in basic customs duty from the existing 7.5% to 5% on raw materials imported for manufacturing antibiotics is also a high priority for the export promotion body.
Mani of Glenmark Pharmaceuticals also said that it is imperative to continue the industry’s momentum to supply medicines worldwide by revising customs duty on crucial raw materials being imported.
According to Pharmexcil, the profit margin on the sale of antibiotics is very low, and rising prices of active pharmaceutical ingredients (APIs) are further impacting the industry’s cost competitiveness.
“The government should give generous support to research and development to encourage the industry in developing biopharmaceuticals and biosimilars. Since the global industry is moving towards biosimilars, it is very much needed to strengthen the domestic industry in this particular area," said Uday Bhaskar, director general, Pharmexcil.
Bhaskar also said that Pharmexcil has proposed scaling up the benefits available to drugmakers under the Remission of Duties and Taxes on Exported Products (RoDTEP) scheme that is meant to refund taxes and levies on goods produced specifically for exports.
Queries sent to the spokespeople for the finance ministry, the department of pharmaceuticals and the commerce ministry did not elicit any response at the time of publishing.
