'Withdrawl of tax exemption to negatively impact innovation'

Withdrawal of tax exemption for research and development is likely to negatively impact India's innovation efforts, pharma major Dr Reddy's Laboratories said on Wednesday.

While welcoming the move to simplify taxation laws, Reddy's said withdrawal of R&D weighted deduction is potentially counter-productive and likely to negatively impact India's innovation efforts.

The Central Board of Direct Taxes (CBDT) has proposed to reduce the tax exemption offered on investments made for scientific research from the current 200 percent to 100 percent.

"Countries across the world have been introducing various measures for promoting R&D initiatives in form of R&D credit, R&D weighted deduction and Patent Box etc. The R&D weighted deduction must continue, so as to provide India level playing field in an increasingly competitive global innovation environment," said Saumen Chakraborty, President and chief financial officer (CFO) of Dr. Reddy's Laboratories.

He said the proposal to reduce corporate tax from 30 percent to 25 percent over next four years, coupled with phasing out the investment linked and profit linked deductions, is a step in right direction.

He, however, said the government should also consider a reduction of Minimum Alternate Tax (MAT) in a phased manner.

"The Introduction of a sunset clause for Special Economic Zones (SEZ) with effect from March 31, 2017, seems to be at odds with the 'Make in India' objective. This could be deferred for a few more years, considering the significant investments by the companies, as also the impact SEZs encountered due to the MAT levy," he added.