Three areas pharma companies want Budget to focus on

By Ranjana Smetacek


The Organisation of Pharmaceutical Producers of India (OPPI) has high expectations from the upcoming Budget, especially for the pharmaceutical industry.

In its Pre-Budget Memorandum, OPPI has proposed budgetary measures and support in the following key areas: ·

.Direct Taxes

· Indirect Taxes

· Transfer Pricing


Direct Taxes

1. For companies undertaking scientific research, the percentage of weighted deduction should be increased to 200% from the current 125%

2. Weighted deduction of 200% for expenditure incurred outside the R&D units should be allowed

3. Outsourced R&D and contract manufacturing should get tax benefits

4. Weighted deduction for healthcare infrastructure expenditure in rural/ semi urban areas

5. Tax benefits for setting up state-of-the-art health care facilities in metros, tier I and tier II cities

6. Weighted deduction on healthcare expenditure (revenue and capital) to encourage investment

7. Revisit existing GAAR rules before implementation. Onus to prove avoidance of tax should be the tax department


Indirect Taxes

1. The mandatory pre-deposit of 7.5% on first level of litigation and additional 10% at second level on duty (if duty and penalty both in dispute) or on penalty (if penalty is in dispute) should be made optional and not mandatory

2. Interest payable on delayed payment of service tax should remain 18%, irrespective of the period of delay

3. No Service Tax on R&D /clinical trial services performed in India where the recipient of service is situated outside India

4. A large taxpayer Unit (LTU) should be allowed to pass on the CENVAT credit to its other registered units

Transfer Pricing:

1. Greater clarity needed on amendment to the roll back of Advance Pricing Agreements (APA). Detailed guidelines should be issued on applicability of roll back benefit, impact on on-going assessment, applicability of roll back provisions on bilateral APAs etc.

2. Since rules for determining the arm’s length price still awaited, detailed guidelines for scenarios under which concept of ‘range’ and ‘arithmetic mean’ shall apply, should be prescribed

3. The tolerance band should be restored to the earlier limit of 5 percent

4. Local Marketing expenditure on global brands should not be subject to transfer pricing audit

5. A corresponding adjustment should be allowed in case of any transfer pricing adjustment in Specified Domestic Transactions

6. The penalty structure (2 percent) on Transfer Pricing Adjustments to be toned down, to be levied only in exceptional cases

7. Issuance of a formal guidance for application of the transfer pricing method to differentiate the innovator without comparison with generics, except where such a comparison is based on a scientifically proven method/ guidelines

8. Take into consideration losses incurred in the start-up year/ year of launch of a product or molecule and specific guidelines prescribed to account for the cyclical nature of expenditure

9. Clarificatory guidelines to be provided when transfer pricing regulations forces companies to reduce transfer prices of drugs which lowers end selling prices due to the DPCO rules.

(The author is Director General at Organisation of Pharmaceutical Producers of India)