PricewaterhouseCoopers (PwC) views that the Union government should ensure that the patent box regime introduced in the last Budget 2016 should also be made available to foreign or non-resident assesses on similar lines as available currently to resident assesses, subject to the eligibility criteria.

Patent boxes allow corporate income related to the sale of patented products to be taxed at rates which are significantly lower than those applied to ordinary business income.

Looking into the requirements of the ensuing Union Budget 2017 which is to be presented on February 1, 2017, the global audit consultancy major has pressed for 8 points to be highlighted for the pharmaceutical sector. These include  tax credit mechanism on patent related income streams, and weighted deductions for contract manufacturing R&D units, among others.

“Patent related income streams should be structured in a manner where any excess levies withheld in foreign jurisdictions should be eligible to be offset against any other income taxes of the relevant assesses”, said Dwaraknath E. N - Partner Direct Tax, PwC.

In addition, tax benefits by weighted deductions should be granted for businesses or contract manufacturing R&D units by way of investment linked deductions as against profit linked deductions. The research tax credits should be similar to those in some foreign jurisdictions, he added.

Delving into the much-debated weighted deduction for companies engaged in R&D activity, he said that they should qualify for weighted deduction under section 35(2AB) even in respect of expenditure incurred outside the R&D unit. This is assuming that the said unit is appropriately approved by the Department of Scientific & Industrial Research (DSIR).

Expenses incurred on intangibles acquired, foreign patent filings, etc., should also be considered as eligible under the weighted deduction regime, he noted.

Similarly, weighted deductions should also be considered where part or whole manufacturing activity is outsourced by the entity incurring expenditure on specified R&D activity. Weighted deductions should also be allowed for R&D expenses under MAT (minimum alternate tax) provisions. It should encourage such R&D expenses & allied activities in the country, rather than restrict such deductions under normal provisions of income computation, said Dwaraknath.

Further, limit of salary for weighted deductions on employee hiring under section 80JJA needs to be increased from the existing Rs. 24,000 per month. Tax depreciation rate for all medical,  surgical and pathological equipment should be increased to 60%, owing to the business needs under the current pace of technological advancements resulting in quicker replacement of old or redundant medical equipment, he pointed out.

Corporate Social Responsibility (CSR) expenses incurred in excess of the mandatory two percent threshold under the Companies Act should be fully deductible under section 37, albeit appropriate procedural conditions could be evaluated to regulate abusive transactions. “The government should also make efforts to ensure that the General anti-avoidance rule (GAAR) final guidance is announced and provide clarity to restrict reopening of any prior issues under the same”, said Dwaraknath.