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  • 11 March 2015
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Jaitley’s Budget 2015 has biotech industry subdued

The quick reaction from the biotech industry to the Union Budget 2015 presented by Finance Minister Arun Jaitley has been muted


Many biotech industry leaders have welcomed it "cautiously" mainly due to good macro factors such as fiscal deficit under control, efforts aimed at making things easy for business, efforts to unearth black money and steps towards introduction of the goods and services tax (GST).

Detailed studies will be done by various stakeholders of the industry during March and a clear picture will emerge in a few weeks. The Diagnostics sector has said it was disappointed as many important steps expected have not happened. One of the clear dampeners is the increase in service tax and the proposal for a new Clean India tax. With the service tax being increased to 14 percent from the current 12.5 percent, all diagnostic procedures will become costly for the consumer and this may, in the short term, dampen the demand for these diagnostic products. Also, the current reading is that the service tax could actually be 16 percent as the Clean India tax is an additional two percent surcharge. One needs to wait for the final notification.

Mr Jaitley has announced a new 1,000 crore fund to help innovation and start-ups in the technology sector. Experts differ in whether this is in addition to the 10,000 crore fund announced in the July 2014 budget or whether it has been now scaled down to 1,000 crore factoring in the reality of insignificant disbursals from the scheme so far. Either ways, start-ups will continue to be dependent on private investors rather than the government despite the eulogies being paid to new age entrepreneurs.

The BioServices industry has been in the doldrums due to a variety of factors such as lack of clinical trial approvals, stringent guidelines and activist courts clamping down on this sector. Now, there is an additional worry. A lot of CROs work as captive units for their principals. The new tax rules want "arm's length pricing" for the services they provide to their principals and this could lead to misinterpretations on the tax front for these units in the short run. So far, transfer pricing rules were applicable only to international transactions and now all related party transactions within the country too will come under the "arm's length pricing" rules.

BioSpectrum is planning to conduct discussions on the implications of the budget with the industry stakeholders in Delhi (March 10), Bengaluru (March 13) and Mumbai (March 19). I hope the issues will be discussed at these meetings and some clarity will emerge on some of the new tax rules that have an impact on the bioscience industry. This is the 12th anniversary issue of BioSpectrum.

In the 11th anniversary issue, we had listed what we considered 11 hot biotech startups. We went back to them to check whether the companies were really as hot as we had expected. I am happy to note that all the 11 hot biotechs listed by us last year continue to be optimistic about the future and have done really well!

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