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Budget 2010 Snapshot

Specific proposals for the Pharmaceutical sector


Industry Overview Budget Wish list • Transfer pricing, customs and DPCO regulations to be
harmonised to prevent hardship arising from conflicting
• Industry size approximately USD 11 bn. Ranked 4th in Direct Tax objectives of these regulations, especially in the context
volume and 14th in value, in the world. of active pharmaceuticals ingredients (‘APIs’)/ finished
• Tax deduction to be provided to units engaged in drug formulations imported from related parties.
• Estimated to grow to approximately USD 30 bn by contract research and development (‘R&D’).
2015, with a CAGR of around 12%. • The transfer pricing issue relating to the comparison of
• Incidental expenditure carried outside R&D facility in prices of original researched/ innovator APIs with
• Low-cost manufacturing, high-quality research and India or in any foreign country, to be considered for generic APIs without considering quality and efficacy, to
manufacturing facilities and educated personnel provide weighted deduction. be addressed.
a global competitive advantage to the industry. • Deduction available for in-house R&D to be increased
from 150% to 300%, and to be extended for another
• India is an upcoming destination for clinical trials with a
10 years.
huge patient pool, easy recruitment of patients and high
cost savings. • Tax holiday provided to hospitals set-up in rural areas to
be extended from 5 to 10 years; tax holiday also to be
granted to hospitals set-up outside rural areas.
Key Developments
• Further extension beyond FY11 of the sunset clause
• Proposal to introduce the ‘Clinical Establishments under section 10B, to benefit export-oriented units.
(Registration and Regulation) Bill’.
• The increasingly heavy investment on environment,
• Proposal to introduce the “National Biotechnology health and safety norms, building rural healthcare/
Regulatory Authority Bill”. supply chain infrastructure to be subsidised/ tax
incentivised.
• New Group of Ministers formed to decide the National
Pharmaceutical Policy. • Expenditure incurred on physician's samples or for
educating physicians (through seminars etc) to be
• US Food and Drug Administration office opened in New allowed as a deduction on a CA certification basis.
Delhi, expected to start another in Mumbai.
• MAT to be reduced from 15% to 10%.
• New set of guidelines issued by the Drug Controller
• TDS provisions not to apply to goods purchased under
General of India to streamline the application process for contract manufacturing arrangements.
conducting bioequivalence studies for export purposes.
• Special zones for pharma products planned at
international cargo terminals.
PwC
Budget Wish list Direct Tax - Other Key Proposals
• Income tax slabs for individuals revised favorably
Indirect Tax
• MAT rate increased from 15% to 18%
Customs duty • Surcharge on domestic companies reduced from 10%
to 7.5%
• The list of life saving drugs eligible for customs duty
exemptions to be expanded. • No capital gain tax on conversion of private or unlisted
companies to LLP subject to certain conditions
• Customs duty on medical devices to be reduced. • No disallowance of expenditure, if tax withheld is Contacts
• Custom duty on formulations to be brought down in line with deposited anytime before the due date of filing return of
Chelliah Committee's recommendation. income
• Royalty or FTS liable to tax in India in the hands of non- Sanjay Tolia
• Customs and related duties for import of all capital goods,
resident irrespective of situs of rendering services Executive Director
raw materials, consumables and reference standards for
sanjay.tolia@in.pwc.com
R&D purposes, to be fully exempted.
Indirect Tax - Sector Specific Proposals 91 22 6689 1322
Cenvat
Bipin Pawar
Customs duty
• All excisable goods used for R&D purposes to be exempted Executive Director
• Uniform, concessional basic duty of 5%, CVD of 4% with full
from excise duty. bipin.pawar@in.pwc.com
exemption from special additional duty prescribed on all
91 22 6689 1320
• Bulk drugs and formulations thereof falling under the medical equipments. A concessional basic duty of 5% is
categories of Anti-AIDS, Anti-Cancer, Anti-TB, immune being prescribed on parts and accessories for the S Madhavan
suppressants and other life-saving drugs to be exempted manufacture of such equipment while they would be exempt Executive Director
from excise duty. from CVD and special additional duty. s.madhavan@in.pwc.com
• Import of specific inputs for manufacture of orthopedic 91 22 6689 1266
• Abatement limit allowed for computation of excise duty on implants exempted from customs duty.
medicaments, to be increased from 35% to 45% percent. Sharat Bansal
• Excise duty on APIs covered under Chapter 29 of Central Cenvat Sector Leader
Excise Tariff to be brought on par with the duty on • Reduction in excise duty on goods covered under Medicinal sharat.bansal@in.pwc.com
Formulations covered under Chapter 30 of the Tariff. and Toilet Preparations Act from 16% to 10%. 91 22 6669 1538

• Physician's samples to be exempted from excise duty. Service tax


• Service tax introduced on medical health check up
undertaken by corporates and health insurance companies.
Budget – Proposed Amendments
Direct Tax - Sector Specific Proposals Indirect Tax - Other Key Proposals

• Weighted deduction available for in-house R&D to be • GST expected to be introduced by April 1, 2011
increased from 150% to 200%. • Rate of excise duty on all goods increased from 8 % to 10 %
• No change in the general customs duty and service tax rates
• Weighted deduction for sums paid to approved scientific • Service tax on certain new services proposed and scope of
research association / similar bodies increased from 125% certain existing services enlarged
to 175%.

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