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Run up to the Budget: Pharmaceuticals sector
Inputs for Bulk Drugs
Chemicals and Intermediaries
Input for Formulations
Bulk Drugs
Tax Structure
Customs Duty (Basic)
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2000-01
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Item
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(%)
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Bulk Drugs
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35
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Intermediaries
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35
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Excise Duty
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2000-01
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Item
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(%)
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Bulk Drugs
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16
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Formulations
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16
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Review
- The pharmaceutical industry in India achieved
a turnover of Rs197.4 bn in FY 1999-2000, recording a 15.85% growth over the
previous year. However, the margins were under pressure due to controlled
prices and increasing competition
- The condition imposed by the World Trade Organisation
(WTO) and Trade Related Intellectual Property Rights (TRIPS) would require
India to recognise product patents from the year 2005 in place of the present
process patent. This will prevent domestic companies from replicating patented
drugs by reverse engineering.
- The Indian System of Medicine (Ayurveda) is
a sunrise industry. The estimated potential for global ISM market is around
$ 62 bn whereas the current Indian exports of Ayurvedic products are only
around Rs 4 bn
Previous year (FY 2000-01) budget
announcements
- Generic medicines were brought on par with branded
medicines with excise duty on the former being raised to 16 % from 8 %.
- Reduction of peak customs duty from 40 % to
35 %
- Levy of excise duty on medicines at Maximum
Retail Price (MRP).
- Increase in dividend tax from 10% to 20% thereby
affecting most pharma companies that have a track record of paying high dividend.
- Phasing out the export benefits over a five-year
period, thereby affecting the pharma sector which traditionally has been a
large exporter.
Pre-budget industry Wish List
- The Organisation of Pharmaceutical Producers
of India has proposed that the customs tariffs on raw and packing material,
drug intermediaries and bulk drugs be reduced from 35% to 15%, 35% to 20%
and 35% to 25% respectively.
- The industry has sought removal of import duty
of 35% on reference standards (used for testing) and equipment used for R&D.
- To ensure a level playing field to domestic
companies the Indian Pharmaceutical Alliance (IPA) has demanded that certain
life saving drugs imported by MNCs which are currently attracting nil rate
of customs tariff should attract a Countervailing Duty of 16% - equivalent
to the excise duty charged on local manufactures.
- The drug industry has demanded rationalisation
of the price control norms under the Drug Prices Control Order (DPCO) and
increase in prices from the current mark up level of cost plus 100%.
- The industry is urging the Government to modify
income tax provisions relating to research. The industry has demanded a ten-year
tax holiday on research related income instead of the present ten-year tax
holiday to pharma companies registered between 01/04/00 and 31/03/03 whose
main objective is research. This is because companies who have set up research
units prior to 01/04/01 are finding it difficult to spin-off research units
and fund and sustain them. Moreover the industry has demanded that capital
expenditure on R&D eligible for 125% deduction should also include the
cost of land and buildings, as most of investment is in buildings.
Expectations from the budget
- To promote the drug related research activities
in the country the Government may increase the research related tax benefits
currently available to pharmaceutical companies
Key Players
Cipla, Ranbaxy Laboratories, Dr Reddy's Laboratories,
Glaxo India, Novartis India, Hoescht Marion Roussel, Torrent pharmaceuticals,
Lupin Laboratories, Nicholas Piramal, Knoll Pharmaceuticals, Kopran, Pfizer,
Wockhardt, SmithKline Beecham Pharmaceuticals, Sun Pharmaceuticals, Wyeth Lederle
Rediff-Dun & Bradstreet Budget Impact Analysis
Budget 2001
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