Though the life sciences sector has stored some good points in Union Budget 2016, it has evoked a mixed response from industry experts
This year’s Union Budget has some measures for pharma sector
There are some prudent steps taken, from an employment generation standpoint which is the need of the hour. The allocation of Rs 1804 crore for skill development will provide the right fillip for the manufacturing sector by providing access to skilled manpower, in turn creating employment. This year’s Union Budget also has some measures for the pharma sector such as encouraging innovation in the industry with a 10 per cent rate of tax on income from worldwide exploitation of patents developed and registered in India by a resident. In addition, service tax on services provided by Biotechnology Industry Research Assistance Council (BIRAC) approved biotechnology incubators to incubates being exempted will provide an impetus to start-up biotech enterprises and new units, as this exemption could have a direct impact of 14 per cent on the bottom-line of such enterprises. Having said that, the deduction for expenditures on scientific research (R&D) being cut from 200 per cent to 150 per cent beginning in April ’17 and eventually phasing out from 2020 will have a negative impact on the Indian pharma industry. The duty drawback schemes have also been widened and deepened to include more products and countries which would be a positive for export-oriented pharma companies.
The devil is of course in the details, for example key impact areas across sectors from an indirect tax perspective could be as follows:
- A new Krishi Kalyan Cess is being imposed @ 0.5 per cent on all taxable services w.e.f. June 1, 2016. This would have a negative impact on cash flows, even though it would be creditable.
- Service tax credit can now be distributed to outsourced manufacturers, i.e., to LLM and P2P manufacturers. This would result in lesser burn-out of service tax at the time of distribution, going forward.
- Interest rates have been standardised at 15 per cent p.a., w.e.f. April 1, 2016, a move away from the variable rates presently applicable (between 18 per cent and 30 per cent). This would provide relief to assessees as a potential tax liability on an interpretation matter could actually result in a huge interest burden.
- A clause has been inserted (w.e.f. March 1, 2016) restricting the quantum of rebate to the value of such goods sold in India. Due to this change, the Central Excise rebate which is presently being claimed on export of goods may get restricted on high margin export consignments.
- The normal limitation period for issuance of a show cause notice by the Department has been raised from one to two years in case of Excise and Customs matters; 30 months in case of service tax matters. Thus, any tax/ duty related risk would extend for a longer period, even in cases where there is no malafide intent.
Even though, the budget has increased healthcare spends with announcements such as the health protection scheme which will provide health cover up to Rs 1 lakh per family and ensuring quality health services to a larger populace which may entail increased demand for pharma products and ancillary medical equipment. The proposed ‘National Dialysis Services Programme’ is a good initiative which would decrease the financial impact of prolonged and expensive treatment for dialysis patients. In addition to that, the proposal to open 3,000 stores for generic drugs is a step in the right direction for creating accessibility to affordable medicines, however, demand for branded products could be impacted due to this. Having said that, the budget, as has been the case in the past five years, needs to do more when it comes to making healthcare and medicines accessible. The budget must focus on incentivising the creation of requisite healthcare and medical infrastructure; it must incentivise research and development, encourage pharma manufacturing and exports from the sector. Also, last but not the least the implementation of the GST bill will give a big push to increasing ease of business across sectors.
– Ramesh Swaminathan, Chief Financial Officer, Lupin
I haven’t seen a bold approach to increase financial outlay for healthcare sector
Insurance cover, benefits for the elderly and more government drug stores are welcome steps, as are the proposed national dialysis centres, where the equipment will also have concessional duties. From pharmaceutical sector perspective the expectations were higher, but I haven’t come across any specific provision that merits attention. The only relevant provision is the taxation of royalty income at 10 per cent in respect of innovations discovered and registered in India. We had hoped that concessions on R&D for the life sciences sector would continue at 200 per cent, but these are to be phased out to become aligned with other industries. There was also no mention of incentives for pharma clusters, especially for API manufacturing.
– Dr Shailesh Ayyangar, President – OPPI and Managing Director – India and Vice President –South Asia, Sanofi
‘It is a very welcome and innovative move by the government’
Online pharmacies in India like Netmeds.com, which have started up in India in the last one year or so will also contribute to the government’s intent by providing affordable generic drugs across the country by supplying to remote location through online connectivity. The 100 per cent tax exemption for three of the first five years announced in the budget to start-ups will also help online pharmacies and aggregators of prescription and generic drugs to cater to the vision of providing affordable generic drugs in a more long-term and sustainable way.
– Pradeep Dadha, Founder & CEO, Netmeds.com
Budget is positive on intent, execution is key
Some of the other positives in the budget presented were — no increase in the services tax, which was speculated to rise by two per cent, and no change in capital gains tax. The ‘Make in India’ movement has also been given a fillip through incentives for new manufacturing companies and relatively small enterprise companies.
A move that has come as a slight disappointment for research-driven companies like ours is the reduction of benefit of deduction for research to 150 per cent from April 2017 and 100 per cent from April 2020. This reduction has come without the corresponding tax rate being reduced. The government’s support for innovation R&D is required in the form of tax incentives, regulations and grants for various research projects in sectors like pharmaceuticals. On the other hand; the ‘Special Patent Regime’ proposed to power innovation and research has come as a welcome announcement; but one has to go through the fine print for a complete clarity on this.
Like in the preceding years, the budget did not announce anything specific for the pharma sector; although there were a couple of positives for the healthcare sector. Measures like providing of health insurance of up to Rs 1 lakh per family and the opening of 35,000 medical stores under Pradhan Mantri Jan AushadhiYojana are welcome moves for making medical treatment accessible and affordable for the poorer sections of the society. The budget proposal has also mentioned a national dialysis service programme along with excise duty waiver for dialysis equipment. But the healthcare sector was hoping for schemes like increased national spend for overall healthcare, larger insurance coverage, infrastructure related to healthcare development and increased access to primary and secondary healthcare; which were missing in the budget provisions.
In conclusion it may be said, the finance minister deserves full marks for presenting a well-balanced, growth-oriented budget. So, we can conclude that the budget is definitely positive on intent but now execution is key.
– Glenn Saldanha, Chairman and MD – Glenmark Pharmaceuticals
Budget 2016 has been a mixed bag overall
On the healthcare front, the budgetary emphasis on the sector was fairly muted. While certain initiatives such as the new health insurance scheme or the National Dialysis Services programme are good, perhaps a more holistic, well rounded thrust would have served the sector better in delivering good health to those in need of it.
The initial outlay of Rs 1,000 crores to fund higher education is simply not enough, given the huge gap and growing need for students to have access to high quality education. One hopes that the government will build upon this and expand access to higher education to a much larger section of society.
The plan to set up the National Board of Skill Development in partnership with industry and academia is definitely a step in the right direction. This move will foster an environment of understanding and collaboration that will ensure skill development is mapped to industry needs, thereby creating more job opportunities in the long run.
The finance minister began his speech by articulating the nine pillars on which his budget proposals were built, that would have a transformative impact on the economy and people. The social sector, including healthcare was in the top five. We now look forward to a positive impact on this important aspect of India’s growth story.
– Satish Reddy, Chairman, Dr Reddy’s Laboratories
The Budget will boost growth sentiments and revive the domestic economy
The Finance Minister has taken the reform process forward with emphasis on nine pillars. Jubilant Life Sciences particularly welcomes the focus on agriculture, rural economy, social and infrastructure sectors. The focus on rural economy will generate demand, increase consumption and create opportunities for the corporate sector.
The minister has addressed both short and long-term issues facing the economy.
– Hari S Bhartia, Co-Chairman and Managing Director, Jubilant Life Sciences
‘I feel it will take our country to a much new required growth trajectory’
The fact that the increase in allocation to the tune of Rs 151,581 crores for social sectors including education and health which translates to an eight per cent growth from the last year’s allocation is a welcome change.
The proposed health insurance scheme which intends to protect one-third of India’s population against hospitalisation expenditure is indeed worth mentioning. An additional 3,000 generic medical stores which will be opened under the Pradhan Mantri Jan Aushadhi Yojana will definitely give a positive boost to healthcare access.
Holistically looking at the budget, I do feel it will take our country to a much new required growth trajectory.
– Satish Varma, Managing Director, Fermenta Biotech