The capability of the Indian pharmaceutical companies in providing affordable quality medicines is recognised globally. Also, India has emerged as a hub for collaborative and outsourced research and development (R&D). Further, there is a fundamental shift in the business model of Indian pharma companies from business driven research to research driven business.
Considering the long-term benefits of R&D to the economy at large, all excisable goods used for R&D purposes, should be exempted from Central Excise Duty besides import of all capital goods, raw materials, consumables. Even reference standards for R&D purposes must be fully exempted from customs duty and other related duties. This will definitely boost our R&D activities significantly.
Goods and Services Tax (GST) will be implemented this year and we expect the total tax rate for the Indian pharma industry to increase. To ensure continued availability of medicines, the Government must uniformly exempt all life saving drugs from GST. In order to promote and support growth in Small Scale Industries (SSI), a higher threshold limit of Rs 10 crore should be kept for SSI units under GST.
To ensure proper distribution and availability of medicines all across the country, the two per cent Central Sales Tax (CST) on Inter State Transfers should be discontinued to reduce transaction costs. Also, the benefits granted to units set up in tax free zones should be continued under GST. With the notification of Point of Taxation Rules, 2011, the term ‘Service’ needs to be very clearly defined for the purpose of Service Tax (ST) so as to exclude transactions, which are subjected to sales tax / Value-Added Tax (VAT) and related taxes and thus avoid duplication of taxes or provide clear exemptions in the ST provisions.
Non-profit organisations operating on a mutuality basis and regulated by applicable statutes (in particular bodies like Trade Associations & Co-operatives) need to be kept out of Point of Taxation Rules. Exemption limit for small service providers should be increased from Rs 10 lakh to Rs 25 lakh and should be in line with SSI Exemption Scheme under Central Excise. The eligibility limit of turnover of the preceeding years should be kept at a higher limit vis-a-vis the exemption limit, which may be around Rs 75 lakh. We expect that as provided for business auxiliary services, exemption will be granted with regards to packaging services carried out on job work basis with regards to units, which are discharging Excise Duty at the final stage. Also, in line with the government's policy for other services, an abatement of 60 – 70 per cent may be granted with regards to manpower recruitment and supply service, with suitable revenue safeguards.
We expect that all contracts, which involve goods and service elements, would be brought under works contract service to provide parity of taxation and to avoid double taxation under both VAT and ST. Alternatively, benefit of composition scheme should be made available to all work contracts classified as such under VAT laws irrespective of its classification under the ST law.
As for Excise Duty at present, the rate of API needs to be rationalised and reduced from 10 per cent to five per cent, so as to be at par with other pharma goods. Abatement needs to be immediately increased to 45 per cent as the current 35 per cent abatement is not sufficient to cover the trade margins etc., and the value of R&D costs and other costs incurred by the pharma industry.
Also, a weighted deduction, twice the expenditure on scientific research incurred by a company is allowed. With increasing volume of exports all over the world, our companies need to invest substantial amounts in registration of products overseas. Hence, expenditure eligible for weighted deduction should also include expenditure on product registration in foreign countries and consultants’ fees for patent / product registration overseas. At present, the weighted deduction is not available towards land and building.
However, for carrying out modern-day research, pharma companies need state-of-the art facilities. Several leading companies carry out research work at locations exclusively designated for this purpose. This requires infusion of huge funds on purchase of land and on construction of buildings specially designed for research. Therefore, it is imperative that such companies are also granted the weighted deduction on the expenditure incurred on land and building since such expenditure constitutes a significant amount of the total amount spent on research and development.
Also, pharma companies having their own approved R&D facilities and have to get bioequivalence study through outside agencies before they launch their products in the market. Since these expenses are an integral part of the R&D activity, they should also be made eligible for the weighted deduction even though they are incurred outside R&D facilities.
The Indian pharma industry has always responded to the urgent calls made by the Government, both at the Centre, as well as in the state level, during disasters and natural calamities by providing free medicines anywhere within the country, without keeping in mind about the production costs and expenses involved, in order to distribute the medicines to those who are affected. It is sad that despite our repeated requests and representations, the Government continues to tax these voluntary free medicines by imposing ED and ST on them. Considering the noble gesture by the pharma companies, Exemption Notification should be granted suo moto, with regards to medicines, which are supplied free of cost during calamities and where, Central Excise Duty has been paid in such cases, refund of duties should be promptly granted.
Pharma manufacturers are required to keep aside a few boxes of each batch of medicines manufactured till its expiry, as ‘control samples’ as per the provisions of the Drug & Cosmetic Act & Rules. These cannot be sold and as such should be fully exempted from Central Excise Duty. SME exporters incur expenses like US FDA audit and NSF. As in many other Asian countries, these SMEs must be allowed to take reimbursement from the Government for US FDA and NSF expenses so as to become globally competitive in quality and assurance. The basic customs duty on formulations should be rationalised and reduced to five per cent. Also, import of Reference Standards should be totally exempted from Customs Duty, CVD etc. Unlike last year, when our Finance Minister, Pranab Mukherjee, had almost overlooked the pharma industry, this year we expect that suitable incentives and concessions will be provided to keep our growth momentum going.
Source : expresspharmaonline.com