The Confederation of Indian Industry (CII), in its pre-budget memorandum has said foreign exchange earnings from any research based IPRs such as invention, patent, design, trademark etc, should be exempted from tax provided the same is utilised only for the purpose of in-house research and development within a period of 5 years. According to CII, Indian pharmaceutical companies having world class Research facilities, should be encouraged to reinvest their research related earnings into future research activities.

The memorandum also recommended that the scope of section 35 (2B)(1) of Income Tax Act (150 per cent weighted deduction on expenses incurred) should be enlarged to include expenses incurred on clinical drug trials, regulatory approvals and filing patent applications outside India as well. According to CII, this will encourage Indian companies to succeed in the global arena with international patented drugs.

CII has also called for extension of time limit for in-house scientific research. It pointed out that sub-section 5 of section 35(2AB) states that no deduction shall be available to companies undertaking such in-house research activities after March 31, 2005. The withdrawal of the benefit would have an adverse impact on the research activities in the areas of drug development, biotechnology, chemicals, computer and telecommunication equipment -areas where India has shown tremendous opportunity for growth.

The CII has recommended that in order to facilitate filing of Abbreviated New Drug Application (ANDA) in regulated markets like USA/UK, customs duty for import of materials for new molecules should be at 5 per cent. This is necessary as it is a cost intensive activity.

Since R&D is an important aspect of biotechnology. Customs duties of 20 per cent basic plus 16 per cent CVD on the reagents and equipment imported for use in R &D and manufacture of biotech products make the industry unsustainable. Diagnosis reagents are also used in HIV/AIDS monitoring and cancer diagnosis/life science research. The import duty on reagents needs to be brought down from 20 per cent to 10 per cent, CII felt.

The organisation pointed out that currently, 101 specified items of capital goods and instruments were exempted from basic as well as countervailing customs duties as per customs notification 21/2002-sl no. 248- list 28 when imported either by R&D laboratories in Pharmaceutical and Bio-Technology sectors or by manufacturer having R & D wing registered with Department of Scientific and Industrial Research in the Ministry of Science & Technology. This list needs to be further expanded to include other equipment, CII said.

CII also stated that consumables used in R & D attract peak rate of customs duty of 20 per cent. Also, no CENVAT credit is available for countervailing duty paid on consumables for R & D. Same is the case for excise duty/CVD paid on R & D equipment. CENVAT credit facility should be allowed when research is carried out independently in premises outside the factory of production, according to CII.

CII also pointed out that inactivated rabbies vaccines are exempted from customs duties, but chickenpox vaccine presently not manufactured in India, attracts customs duty of 20 per cent. CII has recommended that in order to protect people from life threatening diseases vaccines like Hepatitis A, Hepatitis B, Polio and others, should be exempted from customs duty.

It has also recommended that few more bulk drugs and their formulations, which are used in the treatment of life threatening diseases such as HIV, AIDS, Cancer etc, must be added in the list of specified 22 specified bulk drugs and their formulations, which are exempt from excise duty, and mentioned in list 2 of excise notification 6/2002 -SL no 47 and 57.

CII has also said that there is a need to cover such drugs under CENVAT scheme, which fall within the ambit of Medicinal and Toilet Preparations Act and are not eligible for CENVAT credit.