Budget 2016: Reduced tax benefits on research disappoints pharma companies

At present companies get tax benefits in form of deduction of 200% on research expenses, which have been reduced to 150%

The government has proposed to extend healthcare benefits to the masses with a new insurance scheme, make kidney treatment affordable and accessible and encourage innovation and patents but the budget announcements failed to cheer pharmaceutical sector as the government has lowered tax benefits on research and development.

"On an overall basis the budget is positive as there is adherence to fiscal deficit target and stress on rural development and infrastructure. However for pharmaceutical sector the budget is slightly disappointing. The major setback is withdrawal of tax deduction on research and development expenses," said Murtaza Khorakiwala, managing director of Wockhardt.

At present companies get tax benefits in form of deduction of 200 per cent on research expenses. Now the government has proposed to reduce the deduction to 150 per cent from next April and 100 per cent from 2020. The reduction in deduction would mean an increase in tax rate for pharma companies. Khorakiwala said Wockhardt spends about 12 per cent of its revenue on research.

On a positive note finance minister Arun Jaitley proposed ten per cent tax rate on income from patents developed and registered in India.

Jaitley also announced new health protection scheme which will provide health cover up to Rs one lakh per family. For senior citizens of age 60 years and above belonging to this category, an additional top up package up to Rs 30,000 will be provided.

The government will also start a 'National Dialysis Services Programme' to make kidney treatment affordable. Funds will be made available through PPP mode under the National Health Mission, to provide dialysis services in all district and certain parts of dialysis equipment will be exempt from customs and excise duties.

"The health protection scheme should also act as a catalyst for investment in healthcare sector and help in improving affordability and accessibility of quality healthcare. This is all the more important considering that nearly 75% of India population is currently without any health insurance. However, the health care industry is concerned since the Government has not addressed the issue of recent increase in import duty on medical equipment and devices. The medical technology sector is in an infancy stage with manufacturing limited to less complex devices. More than 75% of medical equipment / devices is still imported and hence the duty increase will result in increase in healthcare cost," said Anjan Bose, secretary general NatHealth.