The Indian pharmaceutical industry expects the government to restore the tax benefit offered on research and development expenditure in the upcoming Union Budget.
The industry also hopes the government will announce incentives in the budget to encourage setting up bulk drug manufacturing units in the country, in addition to scale-up of spending on healthcare.
“India must move from predominantly branded generic drugs to discovering and developing new drugs; for that the government should resume tax exemption of 200 percent on R&D,” said Sudarshan Jain, Secretary General of Indian Pharmaceutical Alliance (IPA), the industry body that represents large domestic pharmaceutical companies.
Jain sought government to announce incentives to set up 4-6 bulk drug clusters across India to reduce dependence on import. He also sought government to set up innovation clusters.
Indian pharmaceutical industry imports almost 80 percent of its raw materials from China. However the steep price hikes and shortages of Chinese active pharmaceutical ingredients (APIs) and intermediates in 2018, has
The government had introduced a weighted tax deduction of 200 percent on company expenditure on in-house research and development (R&D) in the 2010 Budget, in order to boost innovation in the country. In weighted tax deduction, double the amount spent on R&D is deducted from the profit of the company providing them additional cash to invest in R&D.
While the tax incentive isn’t specific to the pharma industry, but pharmaceutical companies have been major beneficiaries as they have increased their average R&D spend from 5.3 percent of revenue in FY12 to 8.5 percent in FY19.
However, the 200 percent weighted deduction on R&D was short-lived, with the government in 2016 Budget cutting it to 150 percent from 2017 onwards and to 100 percent from 2020 onwards.
To allay industry concerns the government in the same budget announced a patent box-type of incentives for the first time, wherein income received by Indian companies in the form of royalties and technology license fees would be taxed at a reduced rate of 10 percent from the fiscal year 2016–2017 onwards.
The government said this move was designed to stimulate innovation by raising the revenue that companies could earn from their intellectual property.
The industry now wants taxes to eliminated on royalties and technology license fees it earns.
To give fillip to exports – IPA said the government should announce a new scheme of export incentives or subsidies in place of the now scrapped Merchandise Exports from India Scheme (MEIS) to promote pharmaceutical exports.
Under the Merchandise Exports from India Scheme (MEIS), the government provides duty benefits at different rates depending on product and country. The government had to scrap MEIS, as it wasn’t compliant with WTO regulations. Pharma companies were major beneficiaries of the scheme. India’s pharmaceutical exports rose 11 per cent to $19.2 billion in 2018-19.
Call to increase spend on healthcare
The pharma and healthcare sectors have sought the Finance Minister to increase spend on healthcare in proportionate to GDP.
“The Indian Budget should focus on increasing public spending on healthcare, considering India’s demographics, growing population and increasing disease burden. The Budget of 2019-20 saw Rs 62,398 crore outlay for the healthcare sector which was just 1 percent of GDP. This should be increased to 2.5 percent or around Rs 150,000 crore to drive the health sector fast forward,” said Dr. Azad Moopen-Founder Chairman & Managing Director, Aster DM Healthcare.
Moopen also stressed on the need for a viability gap funding by the government for investors who setup hospitals in smaller cities to increase the provider base for Ayushman Bharat and sought an increase of package rates of Ayushman Bharat for more hospitals.
Public sector investment on healthcare in India is one of the lowest globally, at 1.3 percent of GDP.
The budgetary outlay for the Ayushman Bharat the flagship health insurance scheme of the central government remains low (Rs. 6400 crore in BE 2019-20) vis-a-vis its funding requirement.
“Increase in the budgetary support to the scheme will help expand the network and the coverage, while providing affordable healthcare facilities to beneficiaries. The same is also expected to be positive for hospitals in Tier II and III cities and smaller towns, particularly for those that have low occupancies or those that are positioned for affordable care,” rating agency ICRA said.-Moneycontrol