Outsourced drugs may not get excise sop
Medicines produced in an excise-exempt state can be sold in other states too without paying the duty.
By Gireesh Chandra Prasad, TNN |
NEW DELHI: The Budget may take away the bottom line booster MNC pharma companies have been popping on the sly. The finance ministry is mulling restricting the excise duty exemption provided to drug manufacturers in states like Himachal Pradesh and Uttaranchal to companies that market what they produce.
The multinationals have been profiteering from this tax break intended to help in industrialising backward regions. Most of the drug manufacturing units in these states are located in the relatively developed areas bordering other states rather than the hilly interiors.
Also, many small scale manufacturers in other states, including far-flung Gujarat and Tamil Nadu, had to shut shop as the MNCs dumped them for companies in states giving excise exemption. This because the duty saved far exceeds the transportation cost. The duty is levied on the maximum retail price (MRP) and not on the price at which the manufacturer sells to wholesalers, which is substantially low. Excise duty is charged at 16% on 57.5% of the MRP.
Most of these companies do not pass on the excise savings to the consumers, an official said. Medicines produced in an excise-exempt state can be sold in other states too without paying the duty.
Another option before the finance ministry is to halve the excise duty on medicines to 8%. This would reduce the incentive for MNCs to give contracts to producers in these regions.
Although the chemicals and fertilisers ministry wants this, it is unlikely to happen as the finance ministry is worried about the resulting inverted duty structure.
Ingredients cannot attract a higher duty than the finished product, sources said.
The multinationals have been profiteering from this tax break intended to help in industrialising backward regions. Most of the drug manufacturing units in these states are located in the relatively developed areas bordering other states rather than the hilly interiors.
Also, many small scale manufacturers in other states, including far-flung Gujarat and Tamil Nadu, had to shut shop as the MNCs dumped them for companies in states giving excise exemption. This because the duty saved far exceeds the transportation cost. The duty is levied on the maximum retail price (MRP) and not on the price at which the manufacturer sells to wholesalers, which is substantially low. Excise duty is charged at 16% on 57.5% of the MRP.
Most of these companies do not pass on the excise savings to the consumers, an official said. Medicines produced in an excise-exempt state can be sold in other states too without paying the duty.
Another option before the finance ministry is to halve the excise duty on medicines to 8%. This would reduce the incentive for MNCs to give contracts to producers in these regions.
Although the chemicals and fertilisers ministry wants this, it is unlikely to happen as the finance ministry is worried about the resulting inverted duty structure.
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Ingredients cannot attract a higher duty than the finished product, sources said.
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