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PwC, D&B India view govt focus on fiscal consolidation to boost healthcare sector
Nandita Vijay, Bengaluru | Saturday, February 25, 2012, 08:00 Hrs  [IST]

PricewaterhouseCoopers (PwC) and Dun & Bradstreet (D&B India), the leading industry analysts in the country view that the Union government will need to focus strongly on fiscal consolidation. This is driven by the lower revenue generation during 2011-12 owing to the slowdown in the growth momentum which poses as a serious challenges.

While PwC views an investment-linked incentive regime to boost future growth for pharma sector, Dun & Bradstreet India’s expectations from the government is to dole out ambitious or big-budget announcements in 2012-13 are few as its finances remain crippled.

The government will need to give a booster shot to the pharma industry by extending weighted deductions for research funding to overseas affiliates that are not presently covered under the ambit of S 35 of the Income-Tax Act. At a  policy level, there is need to facilitate consolidation of the industry, which could be through establishment of pharma Special Economic Zones (SEZs).“Therefore, the government will need to put in place a clearly defined investment-linked incentive regime to aid the process,” stated Rakesh Mishra, Partner - Tax & Regulatory Services, PricewaterhouseCoopers India.
 
For the pharma industry to  promote research and development, deduction from profits linked to investments into R&D is needed. To provide clarity on deductions on R&D expenditure for companies where manufacturing activity is partly or entirely outsourced, specific provision for such companies is needed, stated Dr Arun Singh, Sr. Economist- Dun & Bradstreet India.

Commenting on the deductions and levies, Dr Singh said that excise duty on Active Pharmaceutical Ingredients (API’s) needs to be lowered from 10.0 per cent to 5.0 per cent to be on par with other pharmaceutical goods. Lifesaving drugs also need to be exempted from Goods and Service Tax (GST).  Moreover, abatements are expected to be increased from 35 per cent to 45 per cent to cover the trade margins of pharmaceutical companies. Existing inverted duty structure for pharmaceuticals has led to accumulation of CENVAT credit. Lowering the excise duty structure for raw materials or  refund mechanism for the accumulated CENVAT credit to reduce tax liability will be beneficial for pharmaceuticals. Advanced pricing agreement mechanism can minimize the tax litigation on issues related to import prices of APIs, added Dr Arjun.

According to Mishra, it is only the pharma and healthcare sectors which have grown fairly consistently, in tandem with the growth rate of the Indian economy. Although the controversy around Foreign Direct Investment (FDI) continues, the interest for clinical research, biologics, manufacture of APIs and generics, where cost advantages, high quality and FDA approved plants make India a destination of choice.

Similarly, manufacturing of medical equipment in India needs to be encouraged, through the reduction of import duties on components which will allow  availability of high-cost medical devices at affordable prices. The government will need to extend provision of low-cost finance to establish rural healthcare infrastructure which would go a long way in promoting healthy living in the heartland, pointed out Mishra.

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