The Indian Drug Manufacturers' Association (IDMA) has urged the government not to discontinue the incentives on pharmaceutical research and development (R&D) as the step may be a setback for all R&D efforts and make the country more dependent on imported drugs at exorbitant costs. The association has demanded that the R&D activity expenses should be continued under weighted deduction of 200 per cent under the income tax laws for at least another 10 years.

Recently, under section 35(2AB) of Income Tax Act it is proposed to reduce rate of deduction for expenditure incurred on R&D activity from 200 per cent to 100 per cent of said expenditure from financial year 2017-2018.

The association has demanded that the R&D activity expenses should be continued under weighted deduction of 200 per cent under the income tax laws for 10 years. The expenses for every activity related to R&D including in-house work, clinical trials and patent related work should be allowed under the above deductions. All equipments, machinery required for R&D purpose should also be exempted from all taxes, excise duties, import duties etc.

The investment on quality related infrastructure, environmental Common Effluent Treatment Plants (CETPs) should also get R&D weighted deduction. Pharma companies having their own approved R&D facilities getting bio equivalence studies through outside agencies before they launch their products in the market should also be made eligible for the weighted deduction under the IT laws. The expenditure eligible for weighted deduction should also include expenditure on product registration in foreign countries, urged IDMA.

The pharmaceutical R&D is very expensive and time consuming as compared to other industrial research, on account of regulatory requirements of safety, efficacy and quality. Sustained R&D efforts by Indian companies have enabled the government to address India's needs on tropical/country specific diseases like TB, dengue and other life threatening inflictions like cancer, asthma, diabetes etc in providing safe and efficacious generic drugs to the people at very low costs.

These innovative generic drugs through indigenous R&D have resulted in successfully extending life expectancy, reduced infant mortality rates and contributed greatly to the overall health of the people. At this time discontinuing incentives on R&D may make the country more dependent on imported drugs.

At present, the weighted deduction is not available in respect of expenditure on land and building. However, for carrying out modern day research, pharmaceutical companies need state of art facilities. Several leading companies carry out research at locations exclusively designated for the purpose. This requires infusion of huge funds on purchase of land and in construction of buildings specially designed for the research purpose. Therefore, in equity and fairness it is imperative that such companies are also granted the weighted deduction on the expenditure incurred on land and building since such expenditure constitutes a significant amount of the total amount spent on the research process.