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Pharma industry rues govt failure to provide relief
The small scale pharma industry has rued the failure of the Government of India to provide them relief in the form of increase in abatement.Though the Economic Advisory Council, headed by Dr C Rangarajan, had recommended an increase in abatement (calculating excise duty) from 40 per cent to 60 per cent, the abatement increase offered to the SSI in pharma sector is only 42.5 per cent (to cater for increase of 6 per cent Trade Margin after MRP Inclusive of Taxes regime effective 2nd October 2006). This even as the Prime Minister, Dr Manmohan Singh, had himself accepted the recommendations of the EAC, and forwarded the same to the Finance Ministry for implementation. However, the Finance Ministry has turned down the proposal to change the abatement for the pharma sector on the pretext that two rates of abatement cannot be prevalent for pharma and 103 other commodities.
In a letter to the UPA Chairperson, Ms Sonia Gandhi, the Confederation of Indian Pharma Industry (CIPI), has rued that the marginal increase in abatement would not bring any relief to the small scale pharma industry, especially those located in states under the MRP tax regime ( all states except Himachal Pradesh, Jammu and Kashmir and Uttaranchal), or the common man as it would fail to curb the rising prices of medicines. CIPI had demanded an increase in abatement to 80 per cent. The confederation also pointed out that even the National Institute of Pharmaceutical Education and Research (NIPER) has calculated 340 per cent trade margins for SSI.
CIPI has said that the change in modality to the MRP-based excise regime increased the excise-burden and relative disparity manifold causing a massive exodus of pharma industry to the states enjoying a tax holiday (Himachal, Uttaranchal and J&K) to evade the burden. About 90 per cent of contract manufacturing takes place in tax exempt states today. “Contrary to the objectives of MRP-based excise, not only has it caused revenue loss but prices of medicines produced in exempt states are double as compared to non-exempt states, as per report of NIPER. Hence, the twin objectives of MRP-based excise stand totally defeated,” CIPI has pleaded to the UPA Chairperson.
MRP-based excise certainly became a deterrent for high trade margins in non tax exempt states, which oppressed their operations but units in exempt states see it as an opportunity to increase MRPs (lacking pressure of excise on MRP) because it is used as a selling point to woo the traders. The net result is that traders prefer goods available excise free, which are cheaper but bear higher MRPs. In the process, SSI Units in non exempt states are rendered uncompetitive and face closure. CIPI has said that with the government’s failure to increase the abatement, the production in the non exempt states will not be restored, rather it will continue to migrate to the three tax exempt states.
