For domestic pharmaceuticals companies to move from being known as generics manufacturers to innovators with a global footprint, specific tax incentives such as tax breaks on earnings from global markets, clarity and enhancement of deduction on various costs incurred for establishing presence overseas are needed.
Speaking to FE, Hitesh Sharma, Partner & Leader, Life Sciences Practice, Ernst & Young, said, ?While some private enterprises are making substantial investments towards improving healthcare infrastructure and distribution networks in non-urban areas, to keep the momentum going and provide encouragement to others, the government must provide fiscal benefits like subsidies and tax incentives. Also, the government must take steps to ensure availability of sufficient healthcare professionals to meet the country?s needs. This would call for greater and effective investments in medical education. In order to incentivise investments, tax holiday period needs to be extended from five years to 10 years.?
India faces a stiff competition from other nations in being a favoured R&D outsourcing destination, he said. There is an urgent need to provide benefits such as weighted tax deduction similar to deduction allowed for in-house R&D and research tax credits that could be used to offset future tax liability. Also, redefining R&D for tax incentives would call for a development of the entire spectrum, he added.
Besides, pharmaceutical companies are also seeking rationalisation of transfer pricing audits, customs valuation and drug pricing regulations. These regulations have conflicting objectives and often result in undue hardships for the companies. Advance pricing agreements and safe harbour rules that have been on the cards should be implemented at the earliest. Public benefit measures such exempting a few more life saving drugs, reducing duty on formulations to 5% and reducing duty on medical equipment and devices should also be looked into.
Currently, 8% tax is levied on active pharmaceutical ingredients and 4% on output leading to accumulation of CenVat credit.