Wish list of policy changes

With the general elections around the corner, the Finance Minister will present a ‘Vote of Accounts’ rather than a budget. Even though the VoA is merely a listing of projected expenses till the new government is formed, and we will most likely see a budget passed in June, representatives of pharmaceutical companies and industry associations are keen to put forth their wishlist in terms of policy changes, probably making sure that the new government is aware of their pain points and demands. Express Pharma presents some of the top points on their wish list

‘Endorsement of bill of entry should be restarted as loan licenses are very common in pharma industry’

Indirect taxes

Daara Patel

The pharma industry faces a huge problem due to the inverted duty structure, i.e. higher duty on inputs at 12 per cent and lower duty on final products (six per cent) and the resulting accumulation of ever mounting cenvat credit. Hence, we request that parity be introduced in the input/output rates of excise duty for pharma products. Pharma exports should be allowed to be cleared at marginal rate of duty (12 per cent as on inputs). This would benefit the pharma exporters at no loss or burden to the exchequer and domestic market.

1. Utilisation of cenvat credit for payment of service tax on reverse charge basis must be allowed. Easy and prompt refund of accumulated credit must be allowed under Rule 5 of cenvat credit rules.
2. Refund based on self–assessment and certificate issued by chartered accountant can be processed.
3. Scrutiny of refund claims should only be for issue-based cases and that is required to be made only after the sanction of the refund claim.
4. Interest should be paid if the refund claim is not sanctioned within 30 days of the application.
5. Credit of excise duty must be allowed while in the same group of factories having same PAN.
6. Physician samples may be exempted from excise duty as they are just two per cent of the total turnover.

MRP abatement of 35 per cent should be increased to 45-50 per cent. Industry was advised to provide reworking justifying increase of abatement.

Industry emphasised that expired goods and distribution cost should be taken while calculating abatement.

Capital goods of Cenvat is allowed only twice a year. It should be allowed as is permitted to SSI.

Exemption limit for small scale industries be raised to Rs 10 crores.

Endorsement of bill of entry should be restarted as in pharma industry the loan licenses are very common.

Credit should be allowed for service provider.

There is disparity in the rate of interest payable by the taxpayers (@ 18 per cent) and the refund by Government (only @ six per cent) needs to be removed to encourage efficient tax administration. Customs authorities are denying exemption from bank guarantee in respect of advance authorisation where jurisdictional excise authorities have issued an order in original and matter is under sub-judice. In such cases exemption from bank guarantee should not be denied when the matter is under sub-judice.

1. All life saving drugs should be exempted from customs duty.
2. Life saving medical devices should also be exempted from customs duty.
3. Basic customs duty on formulations should be reduced to five per cent.
4. Import of all capital goods, raw materials, consumables, and reference standards for R&D purposes should be fully exempted from customs duty and others related duties.
5. Import of reference standards should be totally exempted from customs duty, CVD etc.

Direct taxes

IT circular disallowing expenses as gifts, conference visits etc. for doctors should be prospective and defined clearly.

Weighted deduction should be increased from 200 per cent to 250 per cent under 35(2AB).

All expenses including clinical trials, land and building expenses on actual bases must be allowed as weighted deductions under R&D.

– Daara Patel, Secretary – General, Indian Drug Manufactures’ Association

‘Create rare disease patients registries by linking all institutions’

Prasanna Kumar B Shirol

I recommend the following for the upcoming budget:

1. Special healthcare policy to include all rare diseases in India for diagnostic, treatment and rehabilitation and supportive care for those where there is no treatment options.
2. Encourage and ease the process for international pharma to introduce Food and Drug Administration (FDA) and European Medicines Agency (EMA) approved orphan drugs for the benefit of Indian rare disease patients.
3. Setting up an exclusive rare disease department/unit under the health secretary to address the needs of rare disease patients. Such a department should have appropriate budget to meet these above needs. A single window for clearance of import of orphan drugs and life-saving drugs would be ideal.
4. Government should clear all hurdles to allow swift review and approvals of well designed clinical trials that meet regulatory compliance.
5. Tax subsidies for companies involved in diagnostics, R&D for rare diseases. This includes genetics, genomics, DNA and RNA sequencing based research, drug development, etc. Without good diagnosis, pharma companies will not invest in India.
6. Conduct and gather comprehensive surveys (e.g., part of census) to understand needs of rare disease stakeholders nationally to incorporate in the government’s healthcare vision document. This can provide the necessary statistics to plan for future budget allocations and strategic initiatives for rare disease community.
7. The medical education and training programmes for government doctors to include not only the most common diseases but help create the next generation of doctors trained in diagnosing and treating rare and genetic diseases. These changes are aligned with the global medical community that is rapidly embracing the practice of ‘personalised’ medicine. Also, the curriculum needs to be updated accordingly for medical education in the country to ensure that future doctors are equipped with necessary skills to effectively diagnose/ treat rare diseases.
8. Encourage the pharma R&D community to invest in discovery of novel diagnostic methods and orphan drug development by offering incentives. The US, Japan and other countries have enacted Orphan Drug Acts for this purpose in their respective countries since 1983, and the time is ripe for the most populous democracy to act now.
9. Identify key components of an evidence-based value proposition. Make it part of compassionate access programme that would support market access for a treatment for rare diseases.
10. Create rare disease patients registries by linking all institutions etc.
11. All the rare disease patients also need to be included in the disability list to eligible for all the benefits under the law.
12. New born screening to start for a early diagnosis.
13. Genetic counselling centres to be set up across the nation.

– Prasanna Kumar B Shirol, Founder Member, Organisation for Rare Disease India

‘Cancer should be made the healthcare priority under Companies Bill and should be made a notifiable disease’

Purvish Parikh

The cancer problem is growing exponentially in India. In the West, 65 per cent of cancer patients are cured (no evidence of disease, no medication required and return of normal life expectancy). In India we are able to do this to only 30 per cent of our cases. Inspite of the fact that we have the knowledge and the ability, we are unable to implement for the majority of our patients. So current measures are not enough, at least a 100 more cancer hospitals are needed. The funds allocated by the government can be used more efficiently if they partner with NGOs. The cancer NGOs and support groups are those that have a reach, have hands to do the work and are emotionally committed to do a great job. Last year, half the amount allotted by the Government of India for cancer control remained unutilised and returned to the central pool. The government has the money and the intention but cannot implement due to lack of infrastructure and human resources. This is where the NGOs can step in as implementing partners to the government. When all stakeholders come together, advocacy becomes easier and makes a meaningful change, example is the ban on gutkha in almost the entire country thanks to the initiative, ‘Voice of tobacco victims.’

Since the Companies Bill of 2013 has made two per cent spend on CSR compulsory, the projected Rs 30,000 crores from listed and unlisted companies will be available. The Million Death Study in India showed that seven per cent of all deaths in India are due to cancer. So cancer should be made the healthcare priority under this Companies Bill. Cancer should be made a notifiable disease. This will ensure that we can record and track each and every patient across the country, helping us to document its pattern and whether we are allocating the funds to tackle the right cancers and in the right manner. If this is not possible, all healthcare professionals and health institutions should compulsorily be made to provide cancer related information to all Cancer Registries in India on a priority basis. Specifically, a policy change is necessary so that hospitals, nursing homes, health facilities and pathologists cannot deny providing such data to cancer registries. This is the only way the government will have enough data to decide future strategy, policy and to tackle the cancer tsunami. All hospitals having a cancer department/ facility must have an independent cancer NGO representative on their advisory board.

The name and designation of this member should be prominently displayed in the hospital so that patients can benefit.

– Purvish Parikh, President, Indian Society of Medical and Paediatric Oncology

‘Government will keep in mind the industry growth and will talk about Advance Pricing Agreements’

Dr Rajesh Jain

The expectations from this year’s Union Budget for the pharma sector will be around tax deduction and planned incentives for growth drivers of the sector that includes contract manufacturing, R&D for pharma drug discovery and clinical trials besides the following:

1. Cut on excise duty on both chemical inputs and finished pharma products.
2. Export-related fiscal support.
3. Reduce the Minimum Alternative Tax (MAT) on pharma and biotech industry.
4. Nil service tax under reverse mechanism on R&D’s services.
5. Reduction of customs duty or exemption of customs duty on certain/ specified chemical/ API in order to promote R&D sector in India, keeping in mind that it is the main key driver in Indian economy’s growth trajectory.
6. We are expecting that the Government will keep in mind the industry growth and will talk about Advance Pricing Agreements (APAs) that would predominantly assist healthcare and pharma companies to considerably reduce uncertainty on taxation of such international transactions.
7. The Government may want to look at providing weighted reduction to clinical trial expenditure done by non-manufacturing bodies in approved hospitals.

– Dr Rajesh Jain, Joint Managing Director, Panacea

‘HIV bill which has been pending for over a decade now should be introduced at the earliest’

Apurva Shah

In comparison with the western world, Indian government lacks the provision of healthcare reimbursement to its population. Suggestions under the title of affordable medicines for all could be:

A certain section of medical reimbursement for people below poverty, nearing poverty and just above poverty line can come under a nationalised medical reimbursement scheme. Some of these policies are in place but the percentage of reimbursement reaching the masses needs to be increased.

Further, under the SME scheme, companies who can incur low manufacturing cost and provide generic medicines at affordable prices to the common man should be encouraged with a set standard of bioequivalence criteria.

Clinical research industries who do BA-BE studies for such SMEs should be given a direct/ indirect tax benefit for such services.

Considering that India is the third largest AIDS/HIV affected country, the HIV Bill which has been pending for over a decade now should be introduced at the earliest, to ensure the equality of treatment to AIDS/HIV patients in all classes.

Service tax

By covering all types of drugs research it shall be an incentive for CRO’s for export business which shall increase foreign exchange earnings and will be able to meet the international business requirements and be price competitive as compared to other Asian countries.

Income tax

This shall boost the research activities in India and can make India a global research hub by becoming more competitive among other Asian countries.

Both the above amendments shall also increase the employment in the country by way of developing the existing and new units and will also increase export business which shall increase foreign exchange earnings.

– Apurva Shah, Group Managing Director and Co-Founder of Veeda Clinical Research

‘The government should come up with safe harbour rules’

Dheeraj Aggarwal

We expect the Central Government to notify the safe harbour rule for the entire pharma industry. Since the pharma sector happens to be a major exporter to various countries worldwide, it is exposed to transfer pricing risks.

As of now, big pharma companies dealing in contract research and development (R&D) are getting benefited from the relaxed transaction limit for availing the safe harbour provision in the pharma industry. However, for generic players with major exports, the safe harbour rule could prove to be a credible alternative to avoid transfer pricing disputes. Therefore, the government should come up with safe harbour rules so as to reduce the cost of compliance and litigation.

Excise duty on active pharmaceutical ingredients (APIs) should be reduced from 12 per cent to match with formulations subjected to central excise duty of only six per cent. A higher rate of central excise duty on APIs as compared to the formulations has been resulting in accumulation of cenvat credit for manufacturers who are dealing only in the domestic markets or have minimal exports.

Furthermore, as there is no provision for pharma manufacturers to get the accumulated cenvat credit refunded, it is eventually adding to their expenses/ costs.

As clinical trials are a fundamental requirement for all the research products before introducing them in various markets, all the costs involved, whether in India or overseas, should be a part of the R&D costs under section 35 (2) AB of the Income Tax Act.

On the tax exemption front, the minimum alternate tax (MAT) rate should be reduced and units in backward zones like Himachal Pradesh or Sikkim should be excluded from MAT. This will boost R&D in pharma companies as reduction in MAT rate and exclusion of units from MAT would help in generating good profits.

The pharma industry is an export-oriented one and in the wake of global uncertainties, exports now need some incentives. It is suggested that export-based deductions, like the one under the previous section 80HHC of the Income Tax Act, should be reinitiated.

– Dheeraj Aggarwal, Chief Financial Officer, Venus Remedies

‘Pharma/ Healthcare companies sponsoring health checks in communities should be given 50 per cent or 100 per cent tax rebate’

In terms of policy, we would like to see

a) Tax concessions for spends on diagnosis (as part of preventive health checkups).

Direct tax

1. Companies giving preventive health check-up facilities to their employees maybe granted a tax rebate on such expenses
2. Pharma and other companies in the healthcare sector that sponsor health checks in communities should be given 50 per cent or 100 per cent tax rebate for such expenditure

b) Simplification of collection of net taxes by revenue authorities. Asking assesses to pay gross amount first and claim refunds later is time consuming and blocks funds.

Indirect tax

Ravi Dawar

Additional Duty of customs (ADC) levied in lieu of local VAT generally at the rate of four per cent. This duty is levied in lieu of state VAT and is restored to the assessee either in form of refund (in case of trading of goods) or credit (in case of manufacturers). It can be put forth that the ADC for which refund is sought within one year of payment of duty, can be waived off by the government. This is because huge cash flow in terms of duty cost, time and efforts is involved in making payment to the government and then obtaining the refunds for the same.

Extra duty deposit (EDD)

At one per cent in case of special valuation branch proceedings. The levy of EDD which is deposited in case of associated company imports at the time of provisional assessment, which is later refunded to the assessee on the final assessment may be dispensed with. This is because of practical difficulties in terms of time and costs attached to it, which delays the refund and blocks the cash flow for the assessee.

– Ravi Dawar, Director Finance, BD India

‘To discourage Chinese units from mushrooming their products in India, audit of all Chinese units should be mandatory’

B R Sikri

Contentious problem faced by the pharma industry of the huge cenvat accumulations is a cause of worry for all of us. The basic problem of rate anomaly in the excise duty on input vs output and high rate of service tax on input services has not been addressed and further to that the amendment of restrictive transfer mechanism in revised Rule 7 effective 1.4.2012, have aggravated the issue and cenvat accumulation is piling up every year which is resulting in financial loss to the industry as a whole.

Anomaly in excise duty for domestic industry

Excise duty on input is higher than on finished goods. This is resulting in imbalance on inputs vis a vis output. Particularly in excise exempted area, manufacturers have to absorb inputs of excise and cannot pass it on to the finished good buyers.

Affect of China on API industry in India

The Indian pharma industry is being fragmented with small balance sheet size. Dependency on import of the API used in formulation is due to cheaper cost of APIs from country like China. More than 65 per cent dependability is on China, particularly on antibiotics etc. If suddenly China withdraws, what will be the fate of Indian pharma industry and patients as a whole?

Suggestions

1. The government has to come forward with a special scheme to encourage those products to be produced in India itself instead of depending upon China. The scheme can be of cheap and stable power, environmental technology deployment support, conducive norms and fiscal benefits to all bulk drug and intermediate manufacturers etc. Dedicated bulk drug zones to address pollution norms. Revival of PSUs on the basis of PPP mode of encourage fermentation-based products like Pen.G etc. There is a paucity of biological strains in our country. The existing strains have poor yielding capacity. There is a need to develop the infrastructure and technique of R&D.
2. QC Labs are very expensive. We should develop clusters where world class QC labs are set up.
3. Common facilities such as patent libraries, regulatory affairs, etc. should be provided at identified areas.
4. Working capital norms are not workable. There is a need to increase the number of days from 90 days to 150 to 180 days working capital lending norms keeping the current industry scenario into consideration.
5. Priority allocation of coal and bio fuel natural gas.
6. Soft loan to younger generation who are interested in setting up new pharma API or intermediate industry, without collateral security, less rate of interest and more moratorium.
7. To develop Excise Free Mega Park.
8. Develop clusters of R&D, bio waste management.
9. Rational use of anti dumping duty.

To discourage Chinese units from mushrooming their products in India, audit of all Chinese units should be mandatory, who so ever is supplying APIs to India. China does not register any unit for any products in India without audit whereas in India we have soft corner for them and without any audit we are registering their products and giving everything to them on a platter.

To increase the registration fee of Chinese products in India. At present we charge them very nominal amount whereas they are charging exorbitant amount. this anomaly has to be removed.

Majority of the APIs and intermediates units are in the SSI segment. Special incentive schemes by way of less Income Tax etc. to such category. By this way we can revive many sick units which got closed resulting in depndability more on China.

In 2006, the concept of large taxpayer unit (LTU) was introduced in Bangalore and subsequently this scheme was extended to Chennai, Kolkata and Delhi too. Hyderabad and Visakhapatnam being the hubs of pharma industry, similar facilities under LTU may be extended to these two cities too. Prior to Budget 2011-12, SEZ developers and units were exempted from MAT under section 115 JB(6) of Income Tax Act. During the Budget 2011-12, MAT on book profits of both SEZ developers and units located beside these enclaves was imposed.

It is suggested to exclude them from calculation of MAT

Lastly, we should discourage import of APIs through unregistered source

– B R Sikri, Vice Chairman, CIPI and Director ABS Mercantiles

‘Hopeful that the government will consider favourable economic policies and fiscal measures in the 2014-15 budget’

Ranjana Smetacek

The Organisation of Pharmaceutical Producers of India (OPPI) acknowledges the efforts of the Government of India in partnering with the pharma industry towards making medicines more accessible and affordable. As an industry, we are hopeful that the government will consider favourable economic policies and fiscal measures in the 2014-15 budget.

There are five key areas where the government can play a key role and promote an environment that is conducive to the growth of the industry while also overcoming healthcare challenges

1. Healthcare infrastructure building
2. Improving access to medicines
3. Reduction in transaction costs
4. Incentivising R&D
5. Reduction in tax burden.

The OPPI member companies expect that the government will take measures to make all imported lifesaving drugs more affordable to the patients by eliminating the import duty.

Direct taxes

• Rural and semi urban areas in India lack basic healthcare infrastructure which needs to be addressed. In order to boost investment in such areas, tax benefits on capital expenditure incurred in such areas needs to be provided
• Setting up infrastructure involves substantial financial investment and a long gestation period. Hence, tax benefits should be provided for units engaged in the business of R&D and contract manufacturing by way of deduction from profits linked to investments
• Provision should be made specifically for weighted deduction of R&D expenditure in case of companies incurring R&D expenses where a part/entire manufacturing activity is outsourced
• For India to emerge as a low cost healthcare medical destination, greater impetus needs to be provided for the setting up of state-of-the-art healthcare facilities in the metros, Tier-I and Tier-II cities through appropriate tax benefits.

Indirect taxes

1. Basic Customs Duty (BCD) for health supplements should be reduced to five per cent and CVD/central excise duty to one per cent or six per cent to make it at par with drugs. This would help in making the said beneficial products affordable to the common man
2. All life-saving drugs (including medical devices) should be exempted from custom duty. All equipment meant for diagnostic purposes and consumables thereof should be completely exempted from the levy of customs/central excise duty
3. CVD should be charged at a lower rate of one per cent on import of vaccines, specified medicaments and health supplements imported into India. BCD rate on import of formulations should be reduced to five per cent.

Central excise duty

1. The central excise duty rate of API may be rationalised and made at par with pharma goods i.e. excise duty on the inputs (API) may be reduced from 12 per cent to six per cent
2. An abatement of 45 per cent to 50 per cent is necessary to enable pharma industry to cover its costs while calculating the central excise duty payable. This abatement should be increased to 45 per cent -50 per cent as the current 35 per cent abatement does not even cover the trade margins and the value of R&D costs and other costs associated with the pharma industry such as distribution of many medicines through “cold chain” (for e.g. vaccines)

Value added tax (VAT)

The tax rate of four to five per cent on medicines and the list of tax-exempt goods and declared goods should be uniform across all states

Service tax

1. Cenvat credit of service tax paid should be allowed to brand owner on goods manufactured through job worker or brand owner may be allowed to distribute the credit to the job worker to do away with inequitable situation differentiating between manufacture in-house or at the job workers premises
2. Service tax should not be levied on R&D/ testing services performed in India where the recipient of service is situated outside India.
3. Clarification is required on definition of sponsorship service in order to determine service tax liability under reverse charge on such services and also on other services for depositing service tax under the respective heads.

– Ranjana Smetacek, Director General, Organisation of Pharmaceutical Producers of India

(With inputs from Usha Sharma, Sachin Jagdale and Shalini Gupta)