It’s a mixed bag for pharma; FBT removal to help

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: The Indian pharmaceutical industry, which had high hopes from the Budget, was again forced to be contended with typical custom duty cuts and extension of weighted deduction for R&D projects, as it has not got any major support from the government. Moreover, the industry is concerned about the increase of the Minimum Alternate Tax (MAT) to 15% from 10%, which is expected to hit them hard.

Customs duty cut on 10 specified life-saving drugs/vaccines and bulk drugs from 10% to 5% with nil CVD (by way of excise duty exemption) and customs duty cut on specified heart devices, namely artificial heart and PDA/ASD occlusion device, from 7.5% to 5% are the major aids given to the industry. Allocation under the National Rural Health Mission (NRHM) increased by Rs 2,057 crore over Rs12,070 crore allocated in the interim budget 2009-10. Allocation for all BPL families under the Rashtriya Swasthya Bima Yojana has been increased by 40% over previous allocation to Rs 350 crore. Also, the fringe benefit tax (FBT) was abolished.

DG Shah, secretary general, Indian Pharmaceuticals Alliance, an association of top-most Indian pharmaceutical firms, feels that there is a negative impact for the industry with the Budget. He said, "The increase of the MAT to 15% from 10% will hit the Indian pharma industry hard, while the extension of weighted deduction of 150% on expenditure incurred on in-house R&D, fall short of our expectation. After all, the customs duty cut will have its benefit to only patients and not the industry." IPA, in its submission, had asked for more government support for R&D programmes.

The drug manufacturing units will have an adverse impact due to the hike in MAT, experts feel. MAT is the amount companies pay as tax on their book profits. However, the companies are allowed to adjust their tax liability under the MAT from seven to ten years.

According to TS Jaishankar, chairman, Confederation of Indian Pharmaceutical Industry (CIPI), a national body for small-scale pharma manufacturers, the Budget is acclaimed by pharma SMEs as a pro-industrial growth one. He said, "The removal of FBT has been a great boon. The pharma industry, which spends a minimum of 15% of turnover on medical representatives and sales promotion, found FBT a major impediment in an already price-controlled industry."