Anti AIDS drugs to be fully exempt from excise duty.
Specific drugs used for treatment of Cancer and other critical diseases would be exempt from custom duty. Incentives earlier given on such drugs, which are now manufactured indigenously, have been charged 5% customs duty.
Customs duty on Glucometers used for diabetes reduced from 25% to 10%.
Dividend Tax of 10% on companies abolished.
Budget Impact
Most of the industry wish list was covered in the Drug policy announced earlier in the month. Except for further incentives for promoting research, the industry was not expecting much from the budget.
Though excise duty on Anti-AIDS drugs has been exempted from excise duty, we expect only marginal benefit accruing to drug manufacturers. Due to tough competition, leading players in this segment like Cipla, Ranbaxy are expected to pass the benefit.
Most of MNC Pharma companies have a high dividend payout ratio. These companies would benefit from dividend tax abolishment in terms of lower cash out flows.
Industry wish list
The recent Pharma policy announced by the government has met most of the expectations of the industry. The policy aims at providing various incentives to promote basic research in the country. The government has also met with its promise to reduce the DPCO coverage by the NPPA, which was a long-standing demand of the industry.
Drug policy Highlights
DPCO control reduced considerably from 74 drugs under coverage to 38 drugs. DPCO controlled drugs would now make up for nearly 25% of domestic retail sales as compared to around 40% currently.
Royalties received by companies from out licensing their research efforts will be fully exempt from Income Tax.
Drugs developed through indigenous R&D efforts would be exempt from the DPCO for a period of 15 years.
Some of the remaining wishes of the industry from the forthcoming budget can be summarized as follows.
Budget Wish List
Capital goods imported for R&D labs should be exempt from customs duty or should qualify for lower slabs of customs duty.
The weighted average deduction for expenditure on in-house R&D should be increased from current 150% to 200%. It may be noted that this deduction was increased from 125% to 150% last year.
New products developed from indigenous R&D work should qualify for a longer exemption of excise duty, compared to 3 years at present.
Key Positives
The importance given by domestic firms for conducting basic analogue Pharma research in India is accelerating. Some of the industry stalwarts have already got early success in their research process.
Having understood the need to tap export market for growth, domestic majors are developing well-entrenched marketing infrastructure in these markets. Companies have also displayed their capabilities to deal with legal issues, which is an essential factor while exploring the generic markets.
The government has kept its promise and the DPCO coverage has been reduced drastically.
Several state governments are providing various incentives to develop global contract research bases in the country.
Key Negatives
Growth in the domestic formulations market has slowed down considerably.
Bulk drugs units are increasingly facing competition from Chinese markets.
The introduction of generic generic in the domestic market has triggered heavy price-cutting thus affecting realizations.
