Crutch, break, in control: Hangin' on to dear life

Drugmakers have demanded concessions for R&D, customs duty rationalisation and duty waivers for life-saving drugs in this Budget. They are also asking for the lowest possible VAT of 4% on medicines from April ‘03.
Of these, R&D incentives are most likely to be granted. Some announcement on life-saving drugs is also expected since the Kelkar Committee has recommended that life-saving drugs be exempt from excise duty. With a product patents regime imminent in ‘05, domestic companies making significant investments in drug discovery want income generated from R&D to be tax-free if reinvested in research. Big drugmakers like Ranbaxy, Dr Reddy’s, and Torrent have struck deals with foreign partners for promising new drugs from their labs which will be taken through trials. They get milestone payments during trials and will also earn royalty if the drug is marketed.
Says Bimal Raizada, senior VP, Ranbaxy Laboratories, “The government should recognise that we are exporting technology, and export income is entitled to tax benefits.� These companies, represented by the IPA, have also asked that expenditure on trials and regulatory approvals incurred outside the country be included in the definition of R&D capex. This is entitled to weighted deduction from taxable income. “Research cannot be bound by borders. Till India gets adequate facilities, we have to do clinical work outside, but the benefits will flow to the country,� Mr Raizada says. The IPA also wants the cost of land and laboratory buildings to be recognised as R&D capex. A large section of the domestic drugs industry, represented by the IDMA, has requested excise duty exemptions on life-saving drugs that are not being charged customs duty when imported. Yogin Majumdar, president, IDMA says this will ensure a level-playing field for domestic manufacturers vis-a-vis importers of life-saving drugs. They have also asked that physicans’ samples and quality control batches be freed from excise duty of 16% since these are
not retailed.
MNCs represented by the OPPI have asked that products that were knocked off the life-saving drugs list that qualify for zero customs duty be reinstated. They have also asked that imported drugs in this list that qualify for 22% effective duty because of locally-made alternatives be restored their zero-duty status. Says Ajit Dangi, OPPI secretary-general, “The revenue loss to the exchequer will be insignificant. Besides, if the government wants to give incentives to local manufacturers, it can waive the 16% excise duty on life-saving drugs that are locally made.�
OPPI has asked for customs duties, currently at 30% on raw materials, bulk drugs and formulations to be brought down to 10%, 10% and 20% respectively. It has also asked for reduced penalties in case of violation of transfer pricing norms.
The ‘01 Budget restricted this to expenditure within the country.
Besides, since some have started conducting clinical trials in the country, the OPPI has suggested that drug samples that are imported for this purpose be exempt from customs duty.