Will the pharma industry be acknowledged in this budget?

The pharmaceutical industry has high expectations from the Union budget this year, considering that no major indirect tax reliefs were announced for the industry in last couple of budgets. It is anticipated that this year, the budget may provide more specifics on the ‘Make in India’ initiative.
 
In fact, to promote manufacturing of active pharmaceutical ingredients (APIs) in India, the Department of Pharmaceuticals declared 2015 as the ‘year of APIs’. The government was expected to introduce several industry-friendly policies and incentives to provide a major push to the growth of the Indian bulk drug industry for it to be a formidable force globally. However, no major tax reforms (especially on the indirect tax front) have been announced by the government yet.
 
As a first step towards incentivising domestic manufacturing, the inverted duty structure for APIs is expected to be rectified. APIs attract an excise duty rate of 12.5 per cent, whereas the final manufactured pharma product is currently taxed at a concessional duty rate of 6 per cent, keeping in mind the essential nature of the product.
 
Given the inverted duty structure, the credit of excise duty paid on procurement of APIs has typically resulted in accumulation of Cenvat credit, which is a significant cost to manufacturing units. Accordingly, reduction in the duty rate on APIs should follow as a logical action plan to avoid such inverted duty structures. It is worthwhile to note here that the draft GST legislation and recommendations surrounding thereto provide for refund of accumulated credit in such scenarios. However, there is no specific provision under current legislation which provides for a refund of the accumulated credit.
 
It is also expected that exemption from service tax on clinical trial is reconsidered, which was withdrawn two years ago. Consequent to this withdrawal, services of technical testing or analysis of newly developed drugs on human participants by an approved Clinical Research Organisation (CRO) had become taxable. The same acts as a deterrent to the activity of research and innovation, which needs to be encouraged, especially when India has the potential of becoming a global clinical trial hub. Alternately, necessary amendments can be made in the Place of Provision of Service Rules, 2012 so that the clinical trials conducted for foreign service recipients qualify as ‘export of services’ and do not attract service tax in India (viz zero-rated).