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‘All excisable goods used for R&D purposes should be exempted from Central Excise Duty’

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It is high time that the Government takes a serious note of the issues and concerns of the Indian pharmaceutical industry. The pharma industry has been providing efficacious, affordable and quality medicines. It has been growing despite dismal Government support as well as international pressures. A more industry-friendly approach would enthuse the pharma industry to provide almost all our people with access to good quality and affordable medicines at a faster pace.

There has been 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 as import of all capital goods, raw materials, consumables and reference standards for R&D purposes must be fully exempted from customs duty and other related duties.

The third proviso to section 10B(1) restricts the deduction under this section upto assessment year 2012-13. By denying the deduction from the assessment year 2013-14, companies who have invested substantial amounts in EOUs with the belief that deductions will be available for 10 consecutive years will be adversely hit. The Government can provide relief to EOUs, which they legitimately deserve, by deleting the said proviso. Therefore, it is suggested that the provisions of section 10B should be continued without any time limit. We request and expect that the weighted deduction of 200 per cent of R&D expenses in an in-house facility will be extended for a further period of five years.

Also, a weighted deduction of twice the expenditure on scientific research incurred by a company is allowed. With increasing volume of exports all over the world, the 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, weighted deduction is not available for land and building. However, for carrying out modern day research, pharma companies need state-of-the art facilities. Several leading companies carry out research at locations exclusively designated for the purpose. This requires infusion of huge funds on purchase of land and for construction of buildings specially designed for research. Therefore, it is imperative that such companies are also granted weighted deduction on the expenditure incurred on land and building since such expenditure constitutes a significant amount of the total amount spent on R&D.

Also, pharma companies with their own approved R&D facilities have to get a bio-equivalence study done 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 these costs are incurred outside the R&D facilities. Similarly import of reference standards should be totally exempted from customs duty, CVD etc.

Pharma manufacturers are required to keep aside a few boxes of each batch of medicine 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.

Similarly, some samples of their medicines are provided to the medical doctors as ‘physician’s samples’ to gauge their efficacy. These must be kept out of purview of all duties and taxes.

The last few budget presentations have overlooked the pharma industry whose capability in providing affordable quality medicines is recognised globally. This year we expect the dynamic and forward thinking new government to create a transparent atmosphere of confidence and trust by providing suitable incentives and concessions to keep our growth momentum going. We are confident that the principle of “less government and more governance” given by our Prime Minister, Narendra Modi will do the magic.

Daara B Patel, Secretary-General, Indian Drug Manufacturers’ Association (IDMA)

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