Chinese Sector Gets Tax Break, Forms Association

China's State Administration of Taxation has announced a tax break on promotion costs for drug companies operating in the country. Firms will now be subject to a 25% pre-tax deduction on advertising expenses, raising the taxable spending threshold from the 8% level previously.

The government hopes the measure will encourage drugmakers present on China's US$5.2bn OTC medicines market, but it has attracted a mixed response from domestic sector sources. Local firm Guangzhou Baiyunshan, which makes OTC traditional Chinese medicines, has already commented that its promotional spending is unlikely to increase in the near term.

Although official statistics indicate that China's overall advertising expenditure grew 27% last year to CNY359.2bn (US$43.4bn), the current wave of consolidation in the drug industry may be holding back non-operational spending.

Meanwhile, drugmakers are reported to have formed a new trade association, the R&D-based Pharmaceutical Association Committee, which is to be affiliated with the Chinese Association of Enterprises with Foreign Investment. The new group's aims will include developing new industry standards, improving technology and working towards greater patent protection.

Officials claim that the association already counts 40 domestic and foreign firms as members, with Abbott Laboratories, Bayer, GlaxoSmithKline, Roche and Xi'an-Janssen reported to have already affiliated. Nevertheless, whether the association will secure any real improvement in patent protection remains doubtful in view of China's poor track record on intellectual property issues.