BUDGET WISHLIST: Pharma sector

CEOSPEAK: Habil Khorakiwala Wockhardt Ltd

"The central government should give more thrust to long-term tax breaks for research and development in the pharma sector".

Chamber Speak

CII
The CII has asked the government to extend Cenvat credit on R&D equipment and consumables even if the research centre is outside the factory premises. It has demanded a reduction in Customs duty to 5 per cent on import of raw material for molecules for the Abbreviated New Drug Application.

FICCI
Ficci has demanded that the government should extend 150 per cent weighted deduction to investments made by pharma companies in land and buildings for R&D.

The industry body has also asked for a waiver of customs duty, excise duty and service tax for capital goods. It has also asked the government to exempt selected life-saving drugs from customs duty.

EXPERTSPEAK: RD Hingwala

Tax sops must be addressed

The Indian pharma industry is at an inflection point. Changes in patent laws have propelled the pharma sector to the centrestage of global attention with respect to outsourcing of contract research, manufacturing, pre-clinical and clinical trials. As a result, large Indian generic companies are acquiring a global footprint and aspiring to be innovators in their respective fields.

However, in the domestic market, challenges exist with respect to pricing pressures, IPR, enforcement and data exclusivity regulation. In order to keep the momentum going, taxation and fiscal policies will have to be conducive to attract investment and promote development of the pharma industry.

There are some benefits provided under the Income Tax Act that are specific to the pharmaceutical industry. However, need of the hour is to address some issues linked with each of these benefits in the forthcoming Budget.

For instance, the tax holiday provided under Sections 10A and 10B of the Income Tax Act, 1961 should also be extended to units engaged in export of bio-technology, healthcare, R&D etc.

The clinical trials carried out by a company engaged in the business of production is eligible for the weighted deduction of 150 per cent which will expire on March 31, 2007.

The allowability should be extended by a further 10 years and made available to research organisations and other non-manufacturing units. Also, the central government should extend the scope for expenses incurred on clinical drug trials, regulatory approvals and filing of patents outside India as well. The central government should exempt clinical research from service tax.

Depending upon the scope of activities, the services of a clinical research unit can be classified as technical testing, scientific consultancy or business auxiliary services.

The classification assumes importance because to qualify as exports, apart from the other conditions, the service should be delivered and used outside India. It would be difficult to comply with this condition, if the classification is technical testing. Service tax at the rate of 12.24 per cent would affect the viability of outsourcing clinical research to India.

The central government should not levy service tax on intellectual property services when VAT is also payable. Transfer pricing regulations need to be amended to protect the confidentiality of assesses' price sensitive information and discourage the use of privately sought information.

The pharma industry looks to the finance ministry to create an enabling environment so that its growth momentum can be further accelerated.

The author is executive director, PricewaterhouseCoopers