Duty exemption norms for imported life-saving drugs, diagnostics components for indigenous manufacture, exemption on customs import duty on R&D equipment, duty refund/drawback for R&D consumables, weighted average tax deduction on R&D expenditure, inclusion of international patent filing costs u/s 35 (2ab) and recognition of anti cancer drugs as life saving drugs are some of the pre Budget demands raised by the Association of Biotechnology Led Entrepreneurs (ABLE) to the Ministry of Finance.
ABLE is of the view that biotech sector which is now gaining maturity required support from the government in the key areas. The 16 point recommendations also featured exemption of withholding tax for technology transfer and technology licensing, excise duty on diagnostic kits for infectious diseases, relaxed export obligation norms for biotech parks, expansion of the list of capital goods under list 27a and list 28 and easing of norms.
In the area of clinical trials, which is gaining momentum in India, ABLE has requested the MoF to include clinical trials as "technical testing or analysis services" under the export of service rules, 2004. A service tax levy of 12.24 per cent on such clinical trial services would make clinical trial services should be reclassified into the third category of the export rules, which states that the services would be considered to have been exported if they are provided to a recipient located outside India to enable the clinical trial services to be exported without payment of service tax.
The recommendations have also included waiver of requirement of filing Form ER-5 & ER-6 under CENVAT credit rules 2004, implementation of service tax rebate/refund notifications, provide two- year moratorium on obtaining price approval for products under price control, provision of a central fund (Rs 200 crore) to compensate states that provide subsidy, specifically to approved transgenic seeds, priority sector lending for biotechnology, budgetary allocation for setting up arbitration council or quasi judicial tribunals to address Intellectual Property Rights (IPR)issues disputes and budgetary allocation for setting up a world class internationally accepted accreditation agency.
According to ABLE, the there exists a serious anomaly with regard to imported and indigenous life saving drugs and diagnostics and wherein raw materials and components used by indigenous manufacturers for such products are levied customs duty and excise duty whereas the finished products are allowed to be imported duty free. This is detrimental to indigenous manufacturing and instead encourages trading. Furthermore, it puts indigenous manufacturers at an unfair disadvantage to MNC competition.
With the Biotechnology sector being a capital intensive segment investment in expensive R&D infrastructure is inevitable. "To realize the full potential of Indian scientific skill base at a commercial level, it is imperative to reduce the capital cost of R&D. Currently, R&D equipment specified in List 27 A and List 28 of the Custom Notification No: 26/2003 dated 01.03.2003 by Department of Scientific and Industrial Research (DSIR) recognized Research Laboratories are exempt from Customs Duty and ABLE wants additional items to be included.
The import of R&D consumables, Reference Standards and reference books are subject to the full incidence of Import Duties at ~37 per cent as no Countervailing duty credit is available on R&D consumables. It is therefore recommended that import of R&D consumables, Reference Standards and reference books be made eligible for Refund/ Duty Drawback based on DSIR certification.
The current provision for a 150 per cent weighted Tax deduction until March 31, 2007, u/s 35 (2AB) for R&D expenditure incurred by DSIR recognized Research Laboratories, has been a great boon to incremental R&D investment. With the new challenges imposed by the WTO-TRIPS regime, R&D investments will need to be augmented even further. ABLE recommended that the weighted deduction be increased to 200 per cent and the scheme be extended for a further period of 8 years i.e. up to March 31, 2015.
The anti-cancer drugs which form a substantial cost of treatment needs to be brought under the purview of the life saving drugs. The impact of customs duty at 12.5 per cent, Excise/ CVD at 16.32 per cent, education cess at 2 per cent and additional duty on Customs at 4 per cent would result in a 36.74 per cent increase in the price of the drugs. The exemption from customs duty on the import of anti-cancer drug and from excise duty on the manufacture of the drug, be granted by including such anti-cancer drugs under List No. 4 of item 83 of the Customs notification No 21/ 2002 dated. 1. March 1, 2002 and under list 3 of item No 54 of the excise tariff Notification No. 4/2006, dated March 1, 2006, Some of the Biotech drugs recently launched in India include BIOMAb EGFR Alimta, Erbitux, etc
Presently, HIV Antibodies diagnostic kits are exempt from Customs Duty under List 4 and CVD/CED under the Central Excise Act. There is a need to exempt levies on kits for Hepatitis C, malaria, tuberculosis, as it falls with the category of Life Saving Drugs.
Biotech entrepreneurs have great difficulty in obtaining bank financing as this sector has a high risk profile with long gestational time lines, which are not conducive to lending. ABLE wants lending to the sector categorized as Priority Sector Lending to spur the investments.