The central government is likely to prescribe a special rate of abatement on the retail prices of drugs for calculation of excise duty.
The move will nullify the effect of an additional tax burden on the drugs sector caused by a chemicals ministry notification that sought mandatory printing of the Maximum Retail Price inclusive of all taxes of drugs from October 2, 2006.
The proposal, moved by the chemicals ministry and approved by the Economic Advisory Council to the prime minister, aims at increasing the abatement rates from 40 per cent to 45 per cent for large and medium-scale pharmaceutical industries and to 80 per cent for SSI drug sector.
The proposal is with the finance ministry for appropriate follow-up action.
According to chemicals ministry sources, the tax-related problems being faced by the pharmaceutical industry will be taken care of once the revised abatement rates come into force.
While the enhanced abatement rate for large pharma is expected to compensate for the additional excise duty component that is being borne by them today, the 80 per cent abatement for SSIs is meant to help provide them with a level playing field vis-a-vis their counterparts in excise-free zones.
Industry associations representing all sections of drug manufacturers have been seeking an increase in the rate of abatement. The SSI demand was for a much higher rise.
"We have requested the government to increase the abatement rate to 52 per cent and have submitted calculations in our favour. We are hopeful that the government takes note of our problem," Dara Patel, secretary general, Indian Drug Manufacturers' Association told Business Standard.
It should be noted that the finance ministry had notified a 5 per cent increase in abatement while calculating the excise duty on MRP of drugs and medicines early last year.
The ministry had clarified that enhancement of the level of abatement from 35 to 40 per cent was carried out in view of the special nature of the industry and the presence of a large number of small and medium manufacturers.
