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This story is from March 3, 2007
Pharmaceutical industry resents added tax
Industry watchers said reduction of import duty on intermediaries used will allow more imports of the chemicals from China affecting the domestic players.
Industry watchers said reduction of import duty on intermediaries and chemicals used in production of bulk drugs, from 15 per cent to 10 per cent, will allow more imports of the chemicals from China affecting the domestic players.
Similarly, the pharma players in export-oriented units and those in special economic zones will have an additional burden of 11.33 per cent minimum alternate tax and around 2.5 per cent on the dividend distribution tax.
"The only saving grace for us is the exemption of service tax on clinical trials by pharma units. But this would not be of much help to the medium players where such investment by Indian players is in infancy," said NR Munjal, vice-president, Indian Drug Manufacturing Association.
The pharma industry was expecting the finance minister to increase the limit of central excise abatement available to it from the current 40 per cent to 60 per cent as well as to extend benefits of Section 35 (2AB) of the Income Tax Act beyond March 31 to keep up their R&D investments.
As of now, the industry pays 16 per cent central excise duty on 60 per cent of the MRP of a drug, availing 40 per cent excise abatement.
If the excise abatement is hiked to 60 per cent, the MRP can be brought down and the benefit passed on to the consumer, they said.
PK Gupta, vice president, Confederation of Indian Pharmaceutical Industry (SME), said, "We need this relaxation to counter the sops available to the players in the tax havens in the hilly states."
As per the provisions of Section 35 (2AB) of the income tax act, which expires on March 31, industrialists said they invest around four per cent to five per cent of their turnover in research and development and get tax rebates as incentive for it.
The industry can't afford to curtail R&D investments, which is likely if this provision is not extended, they argued. As per estimates, research and development expenditure of major Indian pharma companies is approximately under 5 per cent of their turnover against global benchmark of 15 per cent.
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