Our Bureau

New Delhi, Feb. 23

THE Government on Wednesday hiked the abatement rate on the retail sale price-based excise duty levied on drugs and medicines from 35 per cent to 40 per cent.

What this means is that if the retail price declared on a pack of a drug is say Rs 100, the ad-valorem excise duty of 16 per cent would henceforth be levied on Rs 60, against Rs 65 under the earlier abatement level of 35 per cent.

The decision to hike the abatement rate has been attributed to representations from industry, which included a large number of small and medium manufacturers. The industry had protested against the Finance Ministry's decision to levy retail sale price (RSP)-based excise duty on drugs and medicines with effect from January 8 as against the earlier system of levying excise duty on the basis of ex-factory transaction value.

According to the Finance Ministry, in the case of drugs, there was a wide variation between the declared ex-factory price (on which excise was being levied) and the price at which they were being retailed, leading to large revenue leakages. There were drugs whose ex-factory price was Rs 7.07 being sold at the retail end for Rs 54. The move to levy excise on the basis of RSP was motivated by this trend.

The Finance Ministry, on Tuesday, also defended a 35 per cent abatement rate, which, it claimed, took into account a 10 per cent margin for the wholesaler, a 20 per cent margin for the retailer and 5 per cent for various statutory levies.

(This article was published in the Business Line print edition dated February 24, 2005)
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