A steep hike in customs duty on lab chemicals from 10 per cent to 150 per cent in Budget 2024 has surprised researchers. The community has sought clarification and called for exemptions to ensure research continuity.
Laboratory chemicals (Harmonised System Code 9802) include fine chemicals and pure compounds used by the pharmaceutical and biotech industry and researchers for lab analysis and synthesis. These chemicals are niche in nature and mostly imported.
Tax experts and industry players said the order was likely passed to prevent smuggling and misclassification of chemicals such as ethanol into this code but the steep tax hike will impact research labs and other R&D units that widely use these reagents.
Analysis of trade under this HS Code shows that the value of imports has been sharply rising each year. It was ₹104 crore in FY21, ₹181 crore in FY22, ₹416 crore in FY23, and zoomed to ₹701 crore in FY24.
“There were some news reports in the last year that some importers were using this route to import chemicals at a lower rate and diverting it to pharmaceutical companies and distilleries. The purpose of the entry was to support R&D. However, considering the diversion to non-R&D activities, the government has plugged the loophole by increasing customs duty,” Shashi Mathews, partner, IndusLaw, said. While no exemption is provided, legitimate importers should petition or make a representation to Government to consider introducing an end-use notification so that R&D activities are not impacted, he added.
Blow or boon?
Some biotech firms and academicians consider this move a blow to R&D.
“These are already high-priced chemicals, and the duty hike will make them unaffordable for R&D, increasing the overall cost of consumables,” Dr Sivaram Pillai, co-founder and R&D head, Proklean Tech, told businessline. Direct Indian alternatives are not always available due to the niche nature of the chemicals, he added.
A professor and researcher with a central university who wished not to be named said that almost 95 per cent of research labs use imported lab chemicals, and most of this experimentation work needs to be reproduced globally. “In some cases, if we replace them with other alternatives, the output will be different; this will affect experimental research significantly, he added.
However, pharma veterans say this should be seen as a quality-oriented move rather than to raise government revenue.
VAV Life Sciences Managing Director Arun Kedia told businessline that it has long been an industry concern, and at a time when the focus is on quality medicines, it is important for the imported reference material to be of high quality. “And while there are companies that bring in quality chemicals, there are also those that import and repackage lab chemicals, and if that is of low quality, it affects the product being made here,” explains Kedia.
Krishan Arora, partner, Grant Thornton Bharat says the move could have far-reaching consequences. “Pharmaceutical companies and research labs might face soaring costs for critical imported chemicals, potentially driving up research expenses and end product prices,” he added.
Meanwhile, academicians also took to Twitter (X) on Tuesday to note that this was already impacting them. “Prices of chemicals in laboratory we use shot up two to three times. Some suppliers have already adapted this new tax rate,” Abhishek Dey, a researcher with an autonomous research institute in Kolkata, wrote on Twitter.