Health care and pharma budget wish list

By | February 23, 2011

The healthcare and Pharmaceutical industry are one the most important sector for India’s growth. Several proposals were suggested by ASSOCHAM to facilitate substantial investments in the healthcare sector in its pre-budget memorandum to the finance minister. Hence, if you are interested to invest in a couple of Auto industry stocks and worried at how the industry will be reacting to the forthcoming budget then this article is worth giving a read!!

Wish list for Pharma and healthcare sector

  • Streamlining policies and tax holidays: As setting up hospitals require a large capital outlay; it takes four to five years to break even. As per the current policies, a deduction for 5 consecutive years is permitted from the previous year in which hospital starts functioning. However the companies are not able to take benefit of the tax holidays as during the initial years it doesn’t earn much profit. Hence, it is necessary to extend the tax holidays to 10 years or the hospital could be given an option to select 5 consecutive years from the initial 10 years of starting operations.
  • 100% deduction should be made available to an undertaking deriving profit from the business of operating and maintaining a hospital located anywhere in India. Currently the deductions are only available in certain urban areas.
  • Expenses which fall outside the R&D facility viz. overseas trials, preparations of dossiers, consulting and legal fees, regulatory and patent approvals, which are directly related to the Research & Development (R&D) should also be brought under the ambit of weighted deduction. If the forthcoming budget makes the relevant amendment, then it will promote in-house R&D in India. Also there are no tax benefits given to companies engaged in the business of R&D or contract manufacturing. Therefore the Organization of Pharmaceutical producer of India (OPPI) has sought benefits for companies engaged in the business of R&D and contract manufacturing by way of deduction from the profit linked to investments. If benefits in the form of research tax credit are awarded then it will help to offset the future tax liability of the company.
  • Clarity of provision for R&D activity: Currently companies engaged in R&D activities do not get any deductions if the Research & Development expenditure is not approved by Department of Scientific & Industrial Research even though the R&D facility is an approved one. Hence there is a need to clarify in the existing provision if only approved expenditure is eligible for deductions or the entire expenditure is eligible for deduction.
  • Currently different medical devices are given partial/full exemption under various entities. Hence there is a need to rationalize the exemptions so as to bring clarity and less disputes from a classification aspect. Also all life saving drugs (including medical devices) should be exempted from custom duty and the custom duty on formulations should be reduced to 5%.
  • Currently SEZ units are exempted from aforesaid import procedure by Drug importer. Howver, there remains an ambiguity on extension of the same benfits to the Export Oriented units (EOUs).  Hence there should be clarity with regards to providing mechanism for import of drugs by EOUs.
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