The biggest demand by the pharmaceutical industry ahead of the Budget is extension of tax benefits on research and development (R&D).
Expert view
Swati Piramal
The biggest demand by the pharmaceutical industry ahead of the Budget is extension of tax benefits on research and development (R&D). The benefit needs to be extended for another five years.
In 2002 the government offered tax benefit to standalone R&D companies for five years. The benefit was given under the section 80IB (8) (A). The government declared the industry under knowledge sector and sops were offered to help companies undertaking drug discovery research. The clause came to an end last year.
Drug discovery needs long gestation period. It takes a minimum of 12 years for any drug to be developed.
Hence the period of five years is not enough for pure research companies. Pharmaceutical sector is unlike automobile or IT, wherein a new product can be launched in 3 - 5 years.
In fact, the process of de-merging or hiving off of R&D started just a year ago. Most of the standalone R&D entities are going to be formed in the coming financial year. Hence the finance minister needs to revive the clause. This will not only enable big companies but also start-ups and academicians to take up R&D.
Most countries like Israel, Canada, Singapore and Korea, have similar tax exemption schemes.
Within R&D, we also want the finance minister to make patents filing as a part of R&D. Patent filing is a very expensive affair due to high fees, Secondly, it needs to be filed across geographies. Excise duty reduction is another benefit we are seeking. Many big pharmaceutical companies have shifted to excise-free regions. But smaller players who cannot relocate are affected due to high duties.
Out of the total cost of the drug, 60% goes in excise, VAT, and middlemen margins. This is called as transaction cost. Excise duty is the highest among all the taxes. It needs to be reduced to 8% from the current 16%.
The finance minister has considered our demands in the past. In the last year’s Budget he did give us the tax benefit for R&D under section 35 AB. The minister extended the sop for another five years.
The auther is director, strategic alliances and communications, Nicholas Piramal India
(As told to Tinesh Bhasin)
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