The Associated Chambers of Commerce and Industry of India (Assocham) has urged the Government to extend provisions of Section 35 (2AB) of Income Tax Act to R&D activities in pharma industry until March 31, 2017 to encourage the new innovations in their competition with the global market.

The Assocham made this request recently in a recent memorandum to the Ministry of Fertilisers and Chemicals and also to the Finance Ministry. The provisions of Section 35 (2AB) of Income Tax Act expire on March 31, 2007 and are required to carry out clinical trials before pharmaceutical products could be commercially launched in the market as without concessions under this section, the domestic pharmaceutical industry would have to incur huge expenditure.

Therefore, the provisions under the Act need to be extended to help pharmaceutical companies in long term planning for research to face emerging competition in the sector, it said.

In the Indian pharmaceutical industry, the R&D expenditure of major Indian pharma companies is below 5 per cent of their turnover against global benchmark of 15 per cent. There is, thus great need for significant increase in R&D spending which could be possible provided Section 35(2AB) provisions of Income-Tax Act are extended for another 10 years as recommended by Assocham, said its president, Anil K Agarwal.

The Chamber demanded exemptions in services provided and availed in relation to R&D activities, imports of all capital goods for R&D purposes and clinical trials expenses should also be covered under Section 35 A (B) of Income-Tax Act.

In addition, it has urged the government that import duty exemption for clinical trials samples should be granted on the basis of authorisation and licence by Drug Controller General of India as also keep patented drugs through indigenous R&D out of purview of price control and clinical trials conducted by Indian pharma companies outside India should also be allowed the same tax benefits as prevailing within the country.

Assocham estimates that the clinical trial market in India will be US$ 200 million by 2007 and US$ 1 billion by 2010. The contract manufacturing market is expected to reach US$ 900 million by 2010.

On clinical trials front, the Assocham pointed out that the business was estimated at was US$ 100 million in 2005. This market is growing at an accelerated pace. India offers a lot of advantages in the clinical trials domain such as cost advantage compared to Western countries.

Major pharmaceutical companies are the main R&D investor in the country. The R&D spend (capital and current) of these major companies has grown at CAGR of 38 per cent during the period 2000-01 to 2005-06. In 2005-06, the R&D expenditure of 50 major companies totalled US$ 495.19 million growing at a rate of 26 per cent over the previous year. The higher growth rate is attributed to product patent implementation in the country in January 2005."