Cut in tax sops for R&D may hit pharma sector

Cut in tax sops for R&D may hit pharma sector
Highlights

A significant cut in tax incentives for research & development (R&D) announced by Finance Minister Arun Jaitley in the Union Budget for 2016-17 is likely to impact pharmaceutical sector adversely and may force some multinationals to shift their research activities to outside of India, according to industry insiders.

Hyderabad: A significant cut in tax incentives for research & development (R&D) announced by Finance Minister Arun Jaitley in the Union Budget for 2016-17 is likely to impact pharmaceutical sector adversely and may force some multinationals to shift their research activities to outside of India, according to industry insiders.

In his Budget speech, Finance Minister outlined that the weighted deduction on R&D spend would be reduced from the present 200 per cent to 150 per cent in the financial year 2017-18 before further cutting it down to 100 per cent from the year 2020.

“This is one of the biggest concerns for pharmaceutical sector because companies may not be willing to invest in R&D here,” V V Parsuram, Global Head (R&D Operations), Dr Reddy’s Laboratories, told media here on Monday.

He further said that there would be chances of multinationals shifting their R&D operations from India to other countries where such sops were on offer. “In the countries like the US, both tax sops on R&D and tax rebates on earnings from patents are available. Some multinationals could shift their bases to such countries,” he maintained.

However, the Finance Minister also made a positive announcement for the pharmaceutical sector in the form of 10 per cent tax rebate on global earnings from the patents developed and registered in India. The move is expected to benefit companies like Dr Reddy’s and Sun Pharma among others which have global presence.

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