Biotech SMEs seek service tax exemption

The Budget expectations and wish lists of the large and small biotech companies are quite different.

Large biotech companies focus on price (of drugs and vaccines) controls, research and development sops, improved and more transparent functioning of regulatory bodies.

Small and medium biotech enterprises (SMEs) are mostly into core technology services, who need to develop a strong patent portfolio and nurture their innovations. So they have submitted separate budget requests to the industry body, Association of Biotech Led Enterprises (ABLE), asking it to take them up with the Department of Biotechnology (DBT) and the finance ministry.

Says K Jayasheela of Gangagen Biotech, which develops anti-bacterial products, "Stages of preclinical development and clinical development are necessarily outsourced to small biotech companies by big companies. By nature, these are very expensive processes. Service tax makes them even more expensive. Hence there is a need to exempt these from service tax."

According to Naveen Kulkarni, chief executive officer of Polyclone Biosciences, which provides R&D services like microarray spotting and developing experimental drug design, biotech SMEs are most concerned about funding for technology development, duty and service tax exemptions.

"Basically, we need sops for core technology companies, especially in the seed stage. Duty and service tax exemption for start-ups are non-existent but if allowed they will encourage many more entrepreneurs to consider investing in India and bringing in novel technology and services," he added.

Duty exemptions can be provided in importing technology, equipment, consumable. Presently, small companies have to pay over 50 per cent duties. Hence Indian research and development costs are higher than in the European countries even though Indian overheads are smaller.

Service tax exemption can critically benefit small technology companies for they typically provide R&D services to large pharma companies in India. If these small high-tech service providers are encouraged, it will go a long way in creating a patent portfolio for the country.

A healthy ecosystem for the development of biotechnology will remove the need for larger Indian companies to look abroad for every bit of newer technology and also help the smaller technology companies to innovate faster.

In Taiwan, the government funds smaller local technology companies in the first place. When foreign players enter the market, it promotes the local talent and industry by making it mandatory for the foreign player to have at least two local vendors for their technology needs.

Thus, in Taiwan today they have over 120 successful small technology companies in segments ranging from genomics and to chemistry formulations.

To qualify for help from the The Small Business Innovation Research Initiative (SBIRI), certification is required from the Department for Scientific and Industrial Research.

The latter requires three years' annual accounts showing profitability. This is absurd for technology start-ups in biotech where projects take long to mature. Thus, only the larger companies are able to leverage the advantage provided by the SBIRI, Kulkarni added.