'There needs to be a serious rethinking on CBDT Proposal'

On Friday, the Central Bureau for Direct Taxes (CBDT) proposed a roadmap to bring corporate tax down from the current 30 percent to 25 percent by doing away with tax breaks to India Inc. One such proposal is to reduce the tax exemption offered on investment made for scientific research from the current 200 percent to 100 percent.This move has not gone down well with the pharma industry. Earlier in the day Kiran Mazumdar-Shaw, Chairperson and Managing Director, Biocon lambasted this move on the twitter. Talking exclusively to CNBC-TV18, she said it is very ironic because on one hand the Prime Minister Modi is pitching for investments into India from across the world and on other hand the tax Sops are being phased out.Removal of exemptions is a retrograde step for pharma and biotechnology companies, said Mazumdar-Shaw. "I find this a measure that will only be detrimental to investment especially when we are competing with other economies that have very attractive tax regimes and tax incentives for investment," she said.According to her this move does not augur well for the economy. “Bureaucracy should not try to derail economic progress,” she said. There will be absolutely no incentive to invest into R&D in India. Companies will take the R&D investments into other countries where attractive tax credits are offered. There needs to be a serious rethinking on the part of government, she said. There will be no big ticket investments coming in if tax sops are removed, she said.She is also surprised that CBDT has not taken on board serious objections by Department of Industrial Policy and Promotion (DIPP) and Department of Science and Technology (DST).However, there are a lot of good things happening too, like freeing up of FDI in sectors, aiming to help loss making discoms etc.Below is a part of the verbatim transcript of Kiran Mazumdar-Shaw’s interview with Shereen Bhan on CNBC-TV18. Q: Why are you so surprised because remember in this Budget the Finance Minster had very categorically stated that exemptions would be done away within a calibrated fashion but at the same time the corporate tax rate would be brought down from the 30 percent to 25 percent? A: In my view both are mutually exclusive. First and foremost our Prime Minister is really pitching for an Invest in India campaign across the globe. It is ironical that you basically start announcing and at the same time a phasing out of tax exemptions and tax incentives. I find this very ironical. I find this a measure that will only be detrimental to investment especially when we are competing with other economies that have very attractive tax regimes and tax incentives for investment. So, this is not something that we can really accept as an industry and as a country. In fact I am very surprised that the government actually the Central Board of Direct Taxes (CBDT) has not even taken onboard a serious objections from Department of Industrial Policy and Promotion (DIPP) and Department of Science and Technology (DST) who are all not in sync with this proposal. So, the Finance Minister might have made a statement but I don’t think it augurs well for the economy. I personally believe that the bureaucracy should certainly not try and derail what we want to do with economic progress and boosting the economy in terms of the investments and this to me is a very retrograde step. Q: You believe that this is a retrograde move on the part of the finance ministry and the government. You believe that this is a bureaucracy hijacking or derailing the government's economic agenda and you have also tweeted to say that this will in fact sound the death knell as far as the biotech industry is concerned. Those are serious comments. The government would suggest at this point in time that perhaps industry is being alarmist? A: It is not alarmist. First and foremost let me tell you even the 200 percent weighted deduction that we were being offered in terms of R&D was only covering 10 percent of our R&D spends. We kept saying that we should be allowed to claim 200 percent weighted deduction on our global R&D spend but that was something that was never considered. Now even that 10 percent you want to reduce it further to half of that. It is ridiculous. When every other country in the world is offering huge tax credits for research why would we want to then invest in research in this country especially when the Prime Minister is actually talking about innovate in India as a big mission. It doesn't make sense. I think the DST is not at all seized of this approach. I think the government needs to understand the importance of investing in R&D. Q: Are you now going to seriously consider and again I am saying if because this is still a draft proposal but if this does go through will you be forced at Biocon now to consider other domiciles as far as research and development (R&D) is concerned? A: Certainly, every company that is involved in research and remember research is inherently high risk. Therefore you do need tax credits to really support this kind of gestational research which takes years to get into the market. So, if you don’t get attractive tax credits for what you are doing you will obviously explore other destinations that offer you these tax incentives. So, I really believe that the government needs to seriously re-think its R&D policy, its tax incentives for R&D. It is important that they actually really engage into serious stakeholder consultation with the Department of Science and Technology with the DIPP. I know both of them have actually objected very strongly to these measures. Q: Are you disappointed with the kind of economic thinking that the government seems to be pursuing on? On one hand it is Make In India, Skill India, Digital India, Invest in India do you believe that what you are finally seeing in the ground is not aligned to the government’s efforts to try and draw in investment whether it is foreign or domestic? A: What I find is that there is a lot of good things happening but there is also a lot of wrong things happening. For instance, this freeing up of foreign direct investment (FDI) in certain sectors is a welcomed development. The discoms, the financial measures that have been taken to free up the loss making discoms is also a welcome development which the government has announced. However, on the other hand suddenly they announced these phasing out of tax exemptions and weighted deductions on R&D which is very disappointing. It is counterproductive. So I just don’t know what is happening. For the entire interview, watch video