Will granting Income-Tax exemption to Pharma companies reduce drug price?

[bobby ramakant]

Dear TB Competence members,

I just read a news (see below) where Government of India is going to grant income-tax exemption to research entities among pharmaceutical companies. I was wondering should it mean explicitly that the drugs-produced for TB, HIV and other health conditions after such subsidized research, will be made available at a reduced price to consumers?

Comments are welcome.
Thanks
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Foreign pharma firms ride R&D tax relief revival hope
Rediff News/ Business Standard
4 February 2010
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Multinational drug companies with research interests in India [ Images ] 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 [ Get Quote ], a subsidiary of Japanese drug major Daiichi Sankyo, Dabur Pharma [ Get Quote ], a subsidiary of European major Fresenius Kabi, and Shanta Biotech, in which Sanofi Aventis [ Get Quote ] 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.

Joe C Mathew in New Delhi

Online at: http://business.rediff.com/report/2010/feb/04/foreign-pharma-cos-ho...

[Gaston]

Hi Bobby, interesting point. This mechanism to use 'advanced market commitments' to accelerate R&D and reduce consumer prices is quite controversial. For a definition see here http://www.gavialliance.org/vision/policies/in_financing/amcs/index... . As an economist, this sounds interesting. As a development workers, I am not too sure whether it works this 'simple' in real life. It will depend on strong commitments from the companies and of course markets can collapse, external events can happen and adjustments need to be made, not always in favour of the end result we had in mind.

Gaston