India's Biocon chief says R&D tax breaks essential for investment

Biocon managing director Kiran Mazumdar-Shaw

As with most corporate chiefs, Biocon's normally would be pleased with India's proposal to lower the nation's corporate tax rate to 25% from 30%. But, if it means eliminating tax exemptions for investments in research and development, Biocon is opposed.

All of India's biotech sector would be adversely affected, the head of Biocon said in an interview conducted soon after the proposal was unveiled. It does not apply specifically to pharmaceutical companies, but the industry, particularly its biotechnology sector, relies heavily on R&D tax exemptions.

Kiran Mazumdar-Shaw, managing director and chairman of the company, sounded like the head of an American corporation when she warned in an interview and a series of social media tweets, the Times of India reports, that the end of R&D deductions would kill innovation and cause companies to send intellectual property and R&D work abroad.

There would be no gain from a lower corporate tax, she said, because elimination of R&D deductions more than offset a 5% decrease in the tax rate. Although officially at 30%, because of various incentives the effective rate is lower than 23%.

Of course the tax issue in India is not on the scale that saw Pfizer ($PFE) and Allergan ($AGN) agree to a massive $160 billion merger. But it does highlight the tax issues driving pharmaceutical investment decisions in India and elsewhere around the globe.

Shaw also said that since 60% of India's manufacturing capacity is idle, the proposal likely would dry up all investments in production. Indonesia, Malaysia and Singapore would be the beneficiaries with their more-efficient tax rates, she said, according to reports.

Particularly in the biotech sector of the pharma industry, research is a high-risk investment, Shaw said, so ending the offsetting tax exemptions could mean the death of India biotechs.

Shaw may have some help in her opposition to the proposal, reports said. She said the Departments of Science and Technology and of Industrial Policy and Promotion also opposed the Finance Ministry's proposal.

The plan out for comment would phase out the R&D exemptions by not renewing those already available for a designated period; they simply could not be renewed. The ministry, which is responsible for India's budget, said various incentives such as the exemptions cost the government millions every year and the lost revenue continue to increase.

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