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18% GST on biotech research services removed

The good news came after the 37th meeting of the GST Council chaired by Finance Minister Ms Nirmala Sitharaman on September 20, 2019 in Goa. Before this decision, India’s biotech research services had to incur 18% service tax on research services provided for even foreign companies because the place of origin of the research service provider was taxable. The GST council has removed the anomaly as hereafter only the place of recipient will be considered for taxation for such services. This means that the service recipient being a foreign located company, the service will be treated as GST-exempt export of services.

The good news came in the form of this item no.10 in the Press Release issued after the GST Council meeting: “To issue a notification under Section 13(13) of IGST Act notifying the place of supply of specified R&D services (such as Integrated discovery and development, Evaluation of the efficacy of new chemical/ biological entities in animal models of disease, Evaluation of biological activity of novel chemical/ biological entities in in-vitro assays, Drug metabolism and pharmacokinetics of new chemical entities, Safety Assessment/ Toxicology, Stability Studies, Bio Equivalence and Bio Availability Studies, Clinical trials, Bio analytical studies) provided by Indian pharma companies to foreign service recipients, as the place of effective use and enjoyment of a service i.e. location of the service recipient.”

The demand for exemption to biotech R&D export services from GST was first raised in a meeting in February 2018 with Commerce Ministry by an industry team led by Dr Kiran Mazumdar-Shaw, chairman of ABLE and Mr Pankaj Patel, CMD, Cadila, among other. ABLE leadership had taken up the issue further with all relevant agencies and GST council in the past 18 months. The success has come now in September 2019.

“This is a great booster step by the government and GST council, “said Dr Mazumdar-Shaw, congratulating the government for this initiative.

There are over 100 biotech service companies that provide a wide range of biological samples from pharma research companies and medical services from around the world. The analysis are done by thousands of researchers in the country’s R&D centers and the analysis reports are given to companies abroad.

Industry experts estimate that these companies collectively paid over Rs 170 crore in GST on such services provided to foreign entities. “ Our services were not treated on par with other exempt services exports because the place of origin of only the service provider was considered and 18% GST levied on it. This had made the export services provided by biotech research companies uncompetitive against competitors in other countries,” explained an industry expert.

The companies will be now in a position to invest these saved GST amount in expanding their research infrastructure and employ more research scientists and aim to capture a much bigger share of the global pie for biotech research services.

Bangalore, 21 September 2018: The government has removed the 18% GST ( goods and services tax) levied on research services provided to foreign companies by biotech companies based in India. This was a major un-competitive factor making Indian biotech services uncompetitive. ABLE has been championing the need for this exemption for the last 18 months.

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