Published Editorial

Budget 2013: Impact on pharma industry

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The Economic Times


Rahul Patni
Associate Director
Tax & Regulatory Services

Being the last budget of UPA-II government before the election year, Budget 2013 seems to be another missed year of tax impetus for the pharma industry in what was expected to be a 'come-back' Budget No 7 of PC Chidambaram.

'Higher growth leading to inclusive and sustainable development' was set as a mool mantra by the Finance Minister, and towards this end, a number of policy measures have been announced targeting better healthcare access for poor/ public at large. Fund allocations to health care sector seem to be the sole positive indicators for the industry. Minister has announced Rs 21,239 crores allocation to new National Health Mission (NHM); a 24.3% increase over the Revised Estimate (RE) of last year, comparison of the same with last year's Budgetary Estimate (BE) (Rs 20,822 crore) would only show a marginal increase of Rs 417 crores. Further allocations to promotion of medical education, healthcare for elderly and mainstreaming of Ayurveda, Unani, Siddha and Homeopathy through NHM are welcome measures. Also, coverage of Rashtriya Swasthiya Bima Yojana (RSBY) has been extended to a number of other underprivileged categories of society.

However, on the tax proposals, not much seem to have been done in this year's Budget. The sharp increase in the rate of surcharge from 5% to 10% would have a negative impact on companies in the pharma sector. The increase in tax withholding rates while making payments to non-resident companies in the nature of royalty or fees for technical services from 10% to 25% is likely to increases the tax burden further. While additional deduction of 15% for investment in plant & machinery (exceeding Rs 100 crore) is a welcome move for manufacturing sector in general, number of pharmaceutical companies benefitting from this would be limited.

It has been mentioned by the Finance Minister that the much awaited rules on safe harbour will be issued after examing the reports of the Rangachary Committee appointed to look into tax matters relating to Development Centres & IT Sector and Safe Harbour rules for a number of sectors. This is a much awaited need and should help in streamlining and simplifying some of the ongoing transfer pricing controversies.

Branded Ayurvedic medicaments and medicaments of Unani, Siddha, Homeopathy or Bio-Chemic system have been brought under MRP based assessment with an abatement of 35% from the MRP. This change has come into force from immediate effect - this should help to address valuation related issues which exist currently and thus align with the larger pharma industry. Rates of customs, excise and service tax rates remain untouched. The roadmap and allocation towards the first installment for CST compensation seems to be a positive foot forward in the implementation of GST.

To conclude, while the policy measures and fund allocations are likely to benefit weaker sections of the society and accordingly is a welcome measure, from pharma industry standpoint, it is another year gone by with no cognizance to its demands.

(Views expressed are his personal.)