Need to balance innovation with affordability of pharma products: OPPI

A holistic approach is needed to expand healthcare in India and OPPI believes that there is a need to balance innovation with access and affordability, within a robust IP environment. The BJP manifesto had laid out the vision of universal healthcare that is not only accessible and affordable but also effective and reduces the OOP (out-of-pocket) spending for the common man. In his Pre-Budget meeting with States and UT Finance Ministers, Arun Jaitley, the Union Finance Minister had also emphasised the importance of healthcare access and quality. He recognised that not only do we need to improve healthcare access but also ensure a quantum jump in the quality of health services at an affordable price.
 
OPPI’s pre-budget memorandum has outlined various expectations.
 
Weighted tax deduction on scientific research
 
The Department of Pharmaceuticals (DoP) envisages developing India as a drug discovery and pharma innovation hub by capturing 15-20% of the world’s R&D pipeline by 2020. This will enable India to become one of the top five countries in the world in terms of drug discovery and pharma innovation.
 
R&D is a segment which can become a key enabler of growth for the Indian pharma sector.  To encourage investment in R&D, any expenditure related to research conducted in-house, ie clinical trials, bioequivalence studies, regulatory and patent approvals, should be eligible for weighted tax deduction, even if these activities are outsourced.
 
Currently there are no specific tax benefits available to units engaged in contract R&D or undertaking R&D for group companies. Benefits should be provided for units engaged in the business of R&D and contract R&D by way of deduction from profits.
 
Clarity on taxing giveaways to doctors
Through a circular of the Central Board of Direct Taxes (CBDT), the Union Finance Ministry brings any expenditure incurred by way of provision of gifts to doctors under the purview of the income tax authorities. The ambiguity of the circular has created widespread concern in the industry. As an interim measure, the CBDT may consider constituting a panel with adequate representation from the industry and Departments of Revenue and Pharmaceuticals  to define expenses as ‘ethical’ or ‘unethical’ and lay down guidelines for implementation.
 
Tax holiday for healthcare infrastructure projects
India's healthcare infrastructure lags behind other developing countries. There is a huge gap between demand and supply. To achieve a desired bed density of 2 per 1000 population by 2025, investment to the tune of US$86 billion is required, the bulk of which is likely to come from the private sector or through FDI, as evident from the current 74% contribution of the non-government sector. Therefore, it is necessary to extend the tax holiday benefit to hospitals set up in urban areas to enable companies to commit the substantial investments required in the healthcare sector.

FDI ambiguity on coverage
FDI is a major catalyst in the growth and development of a country and enables the transfer of technology, capital and knowledge. It provides access to better resource utilisation, increased productivity, introduction of global best practices, good manufacturing practices, job security and more employment opportunities.
Currently, there are no specific guidelines laid down on whether the FDI provisions are applicable to pharmaceutical companies undertaking allied activities e.g. R&D, clinical trials etc.

Excise Duty on APIs
The Union Finance Ministry levies 12% central excise duty (plus 3% cess) on active pharmaceutical ingredients (APIs), whereas formulations are subject to central excise duty of 6% (plus 3% cess).
 
OPPI recommends that the excise duty rate of APIs be rationalised and brought on par with pharma goods, ie excise duty on the inputs (API) should be reduced from 12% to 6%. Alternatively, the Government may introduce a refund mechanism to enable pharma manufacturers to avail refund of excess Cenvat credit. 
 
Other issues that the budget should focus on:

• Adoption and implementation of uniform marketing guidelines (eg the Uniform Code of Pharmaceutical Marketing Practices circulated by the DoP)
• Rationalisation of clinical trial guidelines
• Updating of governing laws such as Drugs & Cosmetic Act to reflect the current industry scenario
• Stakeholder consultation while introducing and implementing drug pricing guidelines

 
Healthcare has been, and will remain, among the biggest challenges for any government.  As India continues to focus on promoting an ‘inclusive healthcare’ agenda, the government will need to enact sound policies that improve healthcare delivery, incentivise sustained development of innovative medicines, benefit patients and strengthen the nation’s overall healthcare system. We are happy to note media reports that suggest that the Government is initiating a new health policy and also working towards augmenting the shortfall of healthcare professionals. We are hopeful that this commitment will be reflected in the 2014-15 Union Budget.
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Ranjana Smetacek is the Director General of Organisation of Pharmaceutical Producers of India (OPPI)