Pharma cos hope R and D sops will boost investmentIndian drugmakers could see excise duty on drugs restored to 8 percent from the present 4 percent, but they are hopeful research & development could attract some tax sops in the Union budget on Feb. 26.

Industry players and analysts expect tax sops for R&D to push investments in the sector.

Sudhir Singhi, chief financial officer, Aurobindo Pharma, said the government might restore the excise duty on drugs to 8 percent from the present 4 percent offered as part of the first economy stimulus package in December 2008, to ease the effects of a debilitating global financial crisis.

"It will be better if the (excise) duty is restored to 8 percent so that margins are maintained," Singhi said.
Indian Drug Manufacturers' Association (IDMA), an industry lobby, however is pressing for the excise duty on drugs to be held at 4 percent to make Indian goods competitive globally.

"We expect the excise duty to remain at 4 percent on ready drugs. However, the government should slash the excise duty on raw material from present 8 percent to 4 percent," an IDMA memorandum submitted to the government said.

"The government is likely to roll back the excise duty to 8 percent, which might hurt the pharma players. But the benefits enjoyed by EOUs (Export Oriented Units) would continue to benefit the drug makers," a sector analyst told Reuters.

In all, 10 life saving formulations used to treat cancer and AIDS are fully exempted from customs duty, while the rest are charged between 5 percent and 7.5 percent. The budget is expected to add few more drugs to this list.

"Customs duty exemption on all the life savings drugs would not help the companies (in revenue terms) but it will improve affordability," said Aurobindo Pharma's Singhi.

Drugmakers are expecting R&D to be a major bet in terms of easing regulation to boost the sector in the country.

"The government should increase the weighted tax deduction on R&D activities up to 200 percent from the present 150 percent," said Dishman Pharma's Managing Director J.R. Vyas.

"This will prove to be a major boost for domestic R&D activities," said Sundeep Bambolkar, director-finance and operations, Indico Remedies Ltd.
Bambolkar also wanted complete income tax exemption on exports to be extended to pharma companies.

"The industry has been pressing for additional sops on R&D and exports fronts. We can expect some announcement in this regard," said another sector analyst.