Non-R & D Firms Must Get Tax Sops

The pharmaceutical industry has asked the government not to restrict the 10-year tax holiday granted to research and development (R&D) companies to pure R&D companies only.

In a letter to the finance secretary, the Indian Pharmaceutical Alliance (IPA) has argued for the extension of this holiday to companies that are engaged in activities other than R&D also, as in the absence of this provision, the benefit of the 150 per cent weighted deduction for research purposes granted to companies will be lost.

The finance minister had, in recent amendments to the Finance Bill, acceded to the demands grant a 10-year tax holiday to scientific research companies. The industry has, however, asked the government to extend the holiday to manufacturing or commercial enterprises engaged in R&D activities which receive royalty income, milestone payments or licensing fees on their intellectual property also.

 

The benefit of the deduction will accrue to companies only if the company has other taxable income. Pure R&D companies may not have other taxable income to avail of the weighted deduction. Only manufacturing or commercial enterprises engaged in R&D activities can claim this deduction.

Also, the alliance has reiterated its case for exempting R&D equipment and consumables from import duty. "The grant of this exemption is not likely to have large revenue implications for the government," says D G Shah, secretary general of the IPA. "Total expenditure on R&D in India is around Rs 260 crore of which only around Rs 100 crore worth of equipment is imported," he adds.

Granting exemption will, he feels, go a long way in endorsing the industry's status as a knowledge-based industry.

After a major disappointment in the Budget, the pharmaceutical industry had lobbied hard for concessions to encourage R&D in Indian industry. The finance minister had finally responded to their demands for the setting up of a Pharma Research and Development Fund and also proposed giving R&D companies a tax holiday up to 10 years and raising the weighted deductions for research expenses from the current 125 to 150 per cent.