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Pharma sector mulls alternative tax incentive package
January, 09th 2007

The pharma industry on Tuesday will propose a package of tax incentives that the Union Finance Minister, Mr P. Chidambaram, could consider to encourage research and development (R&D) spend.

This package is an alternative for the Minister to consider if the industry's existing demand of extending the 150 per cent weighted tax deduction on R&D spend by 10 more years does not find favour with the Government.

Pharma industry captains are expected to meet Mr Chidambaram on Tuesday as part of the pre-budget consultations with the industry.

Alternative package

The alternative package comprises 100 per cent deduction on R&D revenue expenditure incurred for the business of the assessee. This should cover direct expenditure, sponsored research and contribution made to approved institutions.

As part of the package, the pharma industry is set to suggest an accelerated depreciation of 100 per cent on R&D capital expenditure including cost of building.

It also wants tax credit to be fixed at the rate of 20 per cent on total R&D revenue expenditure incurred during the year, with the unused credit allowed to be carried forward for 15 years.

Pharma and biotech industry are by far the highest spenders on R&D, together accounting for Rs 2,000 crore, say industry leaders. They claim that this figure was twice as much as what the auto industry spends and four times as much as the IT industry spends on R&D.

Sources said that industry will also seek tax exemptions under the Sections 10A and 10B of the Income-Tax Law to be extended to biotechnology, healthcare, R&D and clinical trial activities.

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