Budget 2014: Pharma sector left ailing for remedial measures
Tax Partner, EY
Senior Tax Professional, EY
Finance Minister presented the much awaited maiden Budget of the new BJP-led government yesterday. Given the prevailing situation of low growth combined with high inflation and a large fiscal deficit, the budget was anticipated with a sense of hope and aspiration, the belief that it would ring in achche din, albeit in the long run. While the cash-strapped Government was not expected to announce massive sops for industry, it was nevertheless hoped that the Budget would provide directional clarity as to what the next five years are going to look like.
The provisions and announcements in the budget are focussed towards the Government's commitment of "Health for All", especially "Free Drug Service" and "Free Diagnosis Service". To achieve the same, Government announced some positive steps such as opening of new AIIMS like institution, creation of new drug testing laboratories, 15 Model Rural Health Research Centres, strengthening of at least five research centres (which interalia includes research in bio-medical technology devices).
On the indirect tax front, while the government has provided for full exemption from customs duty for HIV/AIDS drugs and diagnostic kits imported under National AIDS Control Programme funded by the Global Fund to Fight AIDS, TB and Malaria, on the whole pharmaceutical sector does not seem to have much to cheer about. Levy of service tax on clinical trials on humans is likely to add to the challenges which this industry is facing around the regulatory policies. Also, while FM addressed the issue surrounding the inverted duty structure for various sectors, the pharma sector seems to have been left out, this has been a long standing demand.
On the direct taxes front, the Government has lowered threshold limit of investment in plant & machinery for providing an investment allowance of 15% from INR 100 crores to INR 25 crores. A welcome move for pharma companies looking for fresh investments in manufacturing assets.
The FM mentioned in his speech, that the Government is committed to provide a stable and predictable taxation regime that would be investor friendly and spur growth. In this regards, FM announced the following steps:
No retrospective amendments in the tax laws which creates a fresh liability
High level committee to be constituted by the CBDT to scrutinize all fresh cases arising in respect of indirect transfers coming to the notice of the tax officer
Setting up high level committee to interact with trade and industry on a regular basis and ascertain areas where clarity in tax laws, should be helpful.
Long drawn litigation has been one of the serious concerns of all the tax payers in India. The Government in order to reduce litigation, has announced multiple steps such as:
Opening up of advance ruling mechanism for residents whereby one could obtain certainty on tax position to be adopted
Enhancing the scope of Settlement Commission to facilitate quick dispute resolution
Introduction of "roll back" provisions in APA scheme whereby an APA entered into for future transactions may also be applied to
international transactions undertaken going back upto 4 years
Amendments in transfer pricing regulation relating to use of multiple year data and range should help address some of the TP issues being faced by industry players.
Lastly, the FM has also promised to consider and revisit the DTC and has mentioned that the Government wishes to find a solution during the year which enables introduction of GST.
In a nutshell, while the policy measures are stepping stone towards making a better and healthier India, from pharma industry standpoint, its long standing demands have remain unaddressed.