With the finance minister P Chidambaram all set to present the Union budget 2008 - 09 on February 29, 2008, the pharmaceutical companies in the country are seeking Central incentives and budgetary support to nurture research and development (R&D) efforts within the country. They have called for a hike in the rate of weighted deduction available to R&D under section 35 (2AB).

In an e-mail reply to Pharmabiz, Malvinder Singh, chief executive officer and managing director, Ranbaxy Laboratories Ltd, said, "Having special regard to the strategic nature of the industry and the fact that it is now ready to take-off both within the country and overseas, it would be prudent to provide the necessary impetus and budgetary support to nurture R&D efforts within the country. In order to do this, it would be pertinent to raise the rate of weighted deduction available to R&D under section 35 (2AB) from the current 150 per cent to at least 200 per cent".

"The current provisions for deduction under section 35(2AB) are restrictive in nature and cover only expenditure incidental to research and development carried on at the in-house R&D facility. It is therefore suggested that its scope be widened, so as to also encompass within its fold all expenditure incidental to basic research carried on at any outside R&D facility, as also clinical trials, bio-equivalence studies etc. that are done outside the R&D facility, whether in India or overseas," he added.

Malvinder Singh also advocated that expenditure incurred on obtaining approvals from any regulatory authority and on filing an application for a patent outside India should also be considered for weighted deduction under section 35(2AB) of the IT Act.

Besides, he said that the provisions for granting 100 per cent deduction under section 80IB(8A), in respect of the profits earned by any company should be renewed and extended up to March 31, 2012, with a view to encourage more such companies to dedicate themselves to the cause of long term R&D by availing tax shelter under section 80IB(8A). This incentive was earlier available, but expired on March 31, 2007.

Malvinder Singh also suggested that no withholding tax be applied on testing charges payable by the Indian research companies to overseas clinical research organisations (CRO) for testing their new chemical entities.

The new drug discovery research cannot be undertaken unless the drug is tested on animals and human volunteers to ensure toxicity/safety and efficacy. Such testing has to be conducted in government approved laboratories, which comply with the standards of good laboratory practices (GLP)/good clinical practices (GCP) laid down by the regulatory authorities.

Due to the difficulties faced on such testing in India, the pharmaceutical companies are required to get the same tested in overseas laboratories, though the drug control authorities of developed countries like US-FDA, CANADIAN-TPDA, UK-MHRA as well as India's DCGI prefer that such testing be conducted on local healthy volunteers or patients. In this context, withholding tax applied on testing charges payable by the Indian research companies to overseas CROs would be an added burden to the domestic companies.