Foreign pharma firms ride R&D tax relief hope

Multinational drug companies with research interests in India may soon find the market more lucrative. The government plans to revive, and may extend to foreign companies, the income-tax exemptions enjoyed by Indian research and development pharma companies till 2007.

Said a source close to the government's plans, "The exemptions, which were available to R&D units approved by the Department of Scientific and Industrial Research (DSIR), will be extended to research arms of foreign entities, provided they are recognised as scientific research institutions by DSIR."

There are multinationals that have acquired research-intensive Indian drug companies. Standalone research entities of foreign companies, if they are registered with DSIR as scientific organisations functioning in the country, will also benefit. Research programmes of Ranbaxy, a subsidiary of Japanese drug major Daiichi Sankyo, Dabur Pharma, a subsidiary of European major Fresenius Kabi, and Shanta Biotech, in which Sanofi Aventis owns a majority stake are a few major ones which will find the tax holiday an incentive to continue research in India.

In a proposal to the finance ministry, the Department of Pharmaceuticals, which is under the ministry of chemicals and fertilizers, has sought the revival and extension of the tax exemptions for 10 years (till 2017) to encourage drug research in India. It wants the relief for companies irrespective of their ownership status, provided they are recognised as scientific research institutions.

To further boost research, the ministry is said to have also taken up the suggestions from industry associations to extend a scheme of providing 200 per cent weighted exemption, instead of the current 150 per cent, on R&D activities. This means, for every Rs 100 spent on R&D, a company could claim Rs 200 as tax-free income.  The pharma department is said to have also lobbied to include expenses on research activities like bioequivalence studies and clinical trials that are outsourced by the research entity under the weighted tax deduction scheme.