The Hindu Business Line : Govt to levy excise on retail prices of drugs

THE Finance Ministry has decided to levy excise duty on the retail prices of drugs and medicines, but it is not clear if this would result in an increase in drug prices.

While the Government said this would lead to rationalisation of tax practices, industry officials felt that the move could lead to changes in the pricing structures. However, it is not clear how the move would impact consumers.

The government on Friday issued a notification bringing drugs and medicines under the purview of levying excise duty on the basis of retail price declared under the Drugs (Price Control) Order, 1995. An official release said, "Retail price-based assessment of excise duty avoids disputes on valuation and ensures certainty in assessment."

It further said the excise duty on drugs and medicines would be levied on the value determined after deducting an abatement of 35 per cent from the declared retail price. "Drugs and medicines are often manufactured on job work basis and also by loan licensee. This leads to differences in practice of assessment and disputes. In order to ensure certainty in assessment, the provision of levying excise duty on the basis of retail price-based assessment has been extended to medicaments," it added. This new system would, however, not be applicable to those medicaments which are exclusively ayurvedic, unani, siddha, homoeopathic or bio-chemic.

According to pharmaceutical industry sources, the retail price-based excise duty helps in controlling the huge trade margins paid by generic companies to wholesalers and retailers. "Since the companies would now have to pay excise on the retail price, the trade margins may have to be reduced," said the officials.

Another section of the industry felt this move could lead to an increase in prices of drugs to the consumers. "There have been very few instances where the tax benefits have been passed on to the consumer, therefore this could very well lead to a hike in prices. Generic drug companies push their products through the retailers. Therefore, the trade margins may not be impacted," they said.

However, analysts said this might have a negative impact on the profitability of the companies.

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