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Mar 17, 2012, 12.58 PM IST | Source: Moneycontrol.com

Budget Reactions: Was pharma sector's wish list fulfilled?

The government has now implemented Alternative Minimum Tax (AMT) for partnership firms as well. This would impact stocks like Cadila and Sun Pharma as they would have to pay 18.5% MAT on book profits earned for the fiscal year. This would increase their tax outgo.

Nothing substantial was announced for the pharma sector in this Budget. It was a complete non-event for the sector.

The weighted average deduction on R&D continues to be at 200%, nothing new was added to this list. The current irrational structure as far as excise duty on APIs and formulations is concerned, remains.

The government has now implemented Alternative Minimum Tax (AMT) for partnership firms as well. This would impact stocks like Cadila and Sun Pharma as they would have to pay 18.5% MAT on book profits earned for the fiscal year. This would increase their tax outgo.

Also, the Goods and Service Tax (GST) is expected to become operational into play from August 2012, this would increase overall tax rate for the sector.

Hence, there is big gap between what the industry expectated and what was delivered in the Budget.

What the industry had expected

> It expected the government to uniformly exempt all life-saving drugs from GST. This would ensure continued availability of medicines.

> If the benefits granted to units under Tax Free Zone were continued under GST, then tax benefits would prevail and that would act as an incentive for drug manufacturers.

> To ensure proper distribution and availability of drugs across India, 2% CST on interstate transfers was expected to be discontinued. This would also help pharma companies to reduce their transactional costs.

> In order to avoid double taxation under both VAT and Service Tax, all contracts which involve goods and service element were expected to be brought under works contract / benefit of composition scheme.

> To eliminate the current irrational structure, excise duty for APIs was expected to be reduced to 5% from current 10%. Basic customs duty on formulations was expected to be rationalized and reduced to 5% (currently at 10%).

> Excisable goods used for R&D purposes could be exempted from Central Excise Duty besides import of all capital goods, raw materials, consumables.

> A new drug delivery system by extending weighted deduction for R&D activity beyond 2012 was expected, this would give incentives for core R&D activity players as well as incentives for expenditure incurred overseas.

Last year, the pharma industry had expected a number of tax benefits from Budget 2011. But, the government increased MAT to 18.5%, brought units operating in SEZ under MAT and hiked excise duty on medical equipments and some drugs by 1%.

READ MORE ON  Pharma, Budget, MAT, SEZ, GST, Budget 2012

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