As usual, the pharmaceutical industry has termed the Union Budget a total disappointment. Though the FM has given a big bonanza to the pharma sector through extension of the 200 per cent weighted deduction for research & development (R&D) expenditure, raise in service tax to 12 per cent from 10 per cent has come as a blow to the sector. The announcement of full exemption from excise duty on six specified life-saving drugs has however, come as a relief to the industry.
In the Budget 2012-13, Finance Minister Pranab Mukherjee has proposed to extend the weighted deduction of 200 per cent for R&D expenditure in an in-house facility, beyond March 31, 2012, for a further period of five years.
The basic customs duty of five per cent will be extended with full exemption from excise duty/CVD to six specified life-saving drugs/vaccines, which are used for the treatment of HIV-AIDS and renal cancer.
Kewal Handa, managing director, Pfizer Limited, said, “The pharmaceutical industry does not have much to cheer about in this Budget. The one per cent increase in excise duty will result in a 1.5 per cent increase in drug prices. It is ironical that on one side the government is trying to reign in prices of drugs and on the other it’s increasing taxes and duties on drugs.”
The Organisation of Pharmaceutical Producers of India (OPPI), a body representing drug multinational corporations (MNCs) in India, had demanded exemption for all life-saving drugs (including medical devices) from customs duty. Currently, customs duty of five per cent is applied on life-saving drugs and medical devices.
Hitesh Sharma, National Leader & Tax Expert - Life Sciences, Ernst & Young, said, “Contrary to expectations of the industry, there is no major incentive or reform for the life science industry. For an industry already reeling under price controls and competition, general increase in service tax and excise duty from 10 to 12 per cent are likely to increase both input and output costs further,” Sharma added.
Indian Drug Manufacturers Association (IDMA), the largest body that represents the country’s pharmaceutical sector, had demanded exemption for all life-saving drugs from the Goods and Services Tax (GST).