As the Finance Ministry prepares the final contours of its fiscal blueprint for FY 2026–27, pharma industry experts called for reducing the tax liability on inputs, offering concessions for R&D-focused firms and expanding PLI support for new products and exports.
Highlighting their key demands for the forthcoming budget, Secretary General, Indian Pharmaceutical Alliance (IPA) said that, “recent global challenges, including US tariffs, supply chain disruptions, and geopolitical uncertainty, underscore the need for strengthening India’s competitive edge …and addressing the widening inverted duty structure, and ensuring refunds on both goods and services, is key to maintaining manufacturing viability and affordability.”
The newly rationalised GST regime with fewer slabs has eased the tax burden on consumers. However, for companies the higher duty—18 per cent—on inputs has created an inverted duty structure, and despite the risk-based provisional refund system, the industry says it continues to face ‘cash-flow constraints’.
“To address the inverted duty structure, the sector is seeking rationalisation of the effective tax rate on inputs, along with expansion of PLI schemes to strengthen API self-reliance,” said, Vice President and Sector Head – Corporate Ratings, ICRA.
Secondly, stakeholders along the manufacturing value chain are persistently pressing for expanding ITC refunds to capital goods and input services, particularly for CDMOs, which remain ineligible under existing provisions.
“Pharmaceutical industry requires significant investment in manufacturing infrastructure and specialised machinery. Inclusion of ITC on capital goods within the refund formula, particularly for exports of goods and services, would support manufacturing activity and help reduce long-term working capital constraints,” an tax expert explained.
Meanwhile, multinational executives have pressed for simplifying the Advance Pricing Agreement (APA) procedures. This includes establishing timelines for swift case resolution and ensuring timely renewals without procedural redundancies.
An Advance Pricing Agreement (APA) is a tool used by several MNCs to determine the transfer pricing methodology for transactions for a prospective fixed period. Since pharma MNCs often have complex transactions on account of royalty payments, and marketing support, APAs help reduce the risk of tax disputes and lower tax liabilities.
PLI push
Even as the industry’s net exports remained robust at over $30 billion in the last fiscal cycle, key expectations include broadening the scope of eligible products, particularly bulk drugs —where domestic players are reeling under predatory pricing from Chinese suppliers.
While, the Commerce Ministry recently imposed a minimum floor price on several APIs and intermediaries, experts suggest reviving the domestic supplier base is critical amid the increasing geopolitical uncertainties and volatile trade environment.
In light of efforts to develop domestic production of bulk drugs and KSMs, Secretary General of IPA, representing leading domestic firms, advocated for “reintroducing concessional tax regimes for new facilities, to support backward integration, and improve FDI inflows.”
Over finished formulations an tax expert said, “the industry is seeking export-linked enhancements within the PLI framework and greater alignment of PLI incentives with research and development to support transition from volume-driven manufacturing to a more value and innovation-led growth model.”
For mid sized manufacturers, an industry expert said to introduce “quality linked incentives and targeted tax rationalisation to enable capacity expansion without compromising on standards.”
Concessions for R&D
Both experts outlined the demand of expanding the scope of section 115BAB of the Income Tax Act, 1961 to provide a 200 per cent deduction rate on expenditures for companies solely engaged in pharmaceutical R&D to support innovation.
According to the experts, historically, this incentive helped build India’s scientific capability and restoring it under the new Income Tax Act would significantly boost investment in novel drugs, complex generics, biosimilars, and vaccines.
Source from: https://pharma.economictimes.indiatimes.com/news/pharma-industry/budget-2026-drugmakers-seek-tax-sops-itc-expansion-and-pli-push-for-api-exports/126464022
