After witnessing a neutral budget last year, the Indian pharmaceutical industry has prepared itself again with its wish list for Budget 2010.
While quality healthcare is nearly a fundamental right of every Indian citizen, rural India bearing three-fourth of the population and ailments burden of India, has only one-fourth of the human resources for health. The primary healthcare facilities in rural area lack drugs, well-trained personnel, diagnostic facilities and proper management. While the industry is making huge investments towards improving healthcare infrastructure and distribution networks in rural areas, development of these areas certainly need Government support, which could be in the form of subsidy, tax incentives and so on.
On healthcare facilities, the growth has not kept pace with the increase in number of reported ailments. As per the FICCI – Ernst & Young Healthcare Report 2008, as against 66 percent rise in persons reporting ailments over last decade, number of hospital beds per thousand has declined by 7 percent. To resolve this imbalance, more and more hospitals and health care facilities would be need to be set up across the country, requiring huge investments. It is the need of the hour that the Government plays its role in achieving the above objective by providing fiscal benefits and extending the existing tax holiday to hospitals set up beyond the rural areas.
Also, given the long gestation period, there is also a need to extend the tax holiday provided to hospitals set-up in rural areas from 5 years to 10 years.
The low cost and high skill advantage makes India an attractive destination to outsource Research &Development work. However, to make India undisputed leader, there is a need to provide tax and fiscal benefits. Apart from weighted tax benefit available for in-house R&D, specific benefits to units engaged in the business of R&D such as profit linked deduction would certainly help achieving the desired objective. Further, following the developed economies, the concept of research tax credits to offset future tax liability can also be considered.
Continuing with R&D, big moves in discovery space by Indian Pharma industry has made them knocking the doors of US FDA for registration. However, this also means huge expenditure on overseas trial, dossiers, legal cost and so on. While regulation has provided for weighted deduction for expenditure on in house R&D facility, the industry has demanded the inclusion of expenditure incidental to research carried outside R&D facility in India or in any foreign country, within the ambit of weighted deduction.
Various regulations such as transfer pricing, customs valuation and drug pricing chase the Pharma companies with diverse objectives and often result in undue hardships for the companies. The industry has sought rationalisation of these regulations along with early implantation of Advance pricing agreements and safe harbour rules.
On the assessment front, the industry has sought the simplification of procedures in view of specific practices followed in the industry. The revenue authorities often challenge the promotional expenditure incurred by Pharma companies and ask for voluminous documents, which are cumbersome to provide. Rationalising these provisions by providing for claim of expenditure on a self certification basis or on specified documents such as CA certificate would go a long way in ensuring the compliance of the law in hassle free manner.
On the indirect tax front, extension of the list of life saving drugs eligible for customs duty exemptions and reducing the duty on medical
devices, would lead to overall reduction in the cost of treatment of patients.
As regards excise duty, manufacturers who are not engaged in exports are facing the issue of accumulation of Cenvat credit in the books, on account of difference in the duty structure of APIs and FDFs. The rationalisation of these provisions certainly needs attention as there are no provisions to recover the accumulated Cenvat credit, which becomes a cost to such manufacturers. Also, rationalization of Value Added Tax (VAT) on medicines across states with specific exemption of life saving drugs and life saving medical devices is also needed before moving to next legislation.
While India Pharma industry has made up its wish list, given that there is a pressure on union finances front as most of the budgetary deficit estimates have been exhausted in first nine months and the government is looking at bringing two major tax reforms, i.e. Direct Tax Code and Goods and Services Tax, it is to be seen whether the Government is in a mood to bring in any major changes in this budget.