Large Indian and global drug makers are set to benefit from the budget announcement by finance minister Arun Jaitley for a 10 per cent tax rebate on earnings from global patent filings. The move may help to Indian drug makers like Sun Pharma, Dr Reddy's, Lupin andWockhardtBSE 5.58 % among others who are expanding their global business through new drug filings.
"Research is the driver of innovation and innovation provides a thrust to economic growth. I propose a special patent regime with 10 per cent rate of tax on income from worldwide exploitation of patents developed and registered in India," Jaitely noted as part of his speech.
Wockhardt Chairman Habil Khorakiwala lauded the step noting it will spur innovation and manufacturing in India. He however cautioned the benefit may be neutralized if it attracts MAT.
Experts noted in general the taxes are around 35 per cent but the 10 per cent tax will be a significant boost. A few years ago the UK government had proposed a similar step to boost local innovation and manufacturing.
"I think this announcement is a positive for the drug industry, as this rebate can be claimed not just on new chemical entities, but also on platform technologies", said D G Shah, secretary general, Indian Pharmaceutical Alliance (IPA). Shah added that the flat corporate tax structure of 25 per cent on companies which commence production after 2016, will also give boost to drug manufacturers who might want to set up new manufacturing facility.
However, the drug industry expressed concerns on the reduction of the weighted deduction on R&D from the present 200 per cent to 150 per cent starting 2017-18 and eventually phasing it out from 2020. "The industry was proposing a 300 per cent weighted average reduction, so this will disappoint the pharma companies", said Sujay Shetty, head of life sciences practice at PriceWaterhouse Coopers (PWC) said.
Khorakiwala said the heart of success for the pharma industry is its ability for innovation. "With the benefits of research cut down and getting phased out, it will be important to review the decision,"he noted. On a scale of 10, Khorakiwala said he will adjudge 8 points to the budget describing it as "overall sensible budget but negative for pharma."
On Monday's trade the BSE Healthcare index at 15:00 pm was up marginally by 0.21 per cent at 15204.