Pharma industry seeks tax reduction for DPCO drugs

IDMA's central committee has already addressed this issue with Union government

While the government is trying to make essential drugs affordable to the masses by bringing more drugs under pricing control, the pharmaceutical industry, on the other hand, wants the government to play its part too by reducing taxes on essential drugs.

The Indian Drug Manufacturers' Association (IDMA), Gujarat wing said that the government should consider reducing taxes on drugs that have come under pricing control.

Chirag Doshi, chairman, IDMA, Gujarat State Board said, "The government wants to make drugs more affordable to the common man, especially the prices of life saving drugs. The government, on its part, can reduce the taxes on these drugs to make it more affordable. The industry is doing its bit by reducing prices of medicines that have been brought under the Drug Price Control Order (DPCO) 2013. Our central committee has already stressed on the need for a tax reduction to the government."

In its attempt to bring down the costs of essential medicines, the central government has recently notified the DPCO 2013, which mandates the National Pharmaceutical Pricing Authority to cap prices of 348 essential medicines based on the arithmetic average of all drugs in a particular segment with more than one per cent market share.

Doshi pointed out that at present the excise duty on drugs is calculated as 6.18 per cent of 65 per cent of the maximum retail price (MRP) of the medicine. "It works out roughly to be around 4 per cent of the MRP. In case of life saving drugs, why cause additional burden to the patient." Industry insiders pointed out that there were other taxes on medicines too. Mahendra Patel, managing director of Lincoln Pharmaceuticals said, "There is an additional value added tax (VAT) of around 4-5 per cent, and also taxes on packaging material which the makers charge us and, in turn, is passed on by us to the consumer. In totality the overall taxes on drugs is around 8-10 per cent."

Another Gujarat-based pharma company owner Kamlesh Patel, managing director of West Coast Pharmaceutical Works and also the vice-president of IDMA, Western Region said, "A huge volume of drugs is manufactured in excise free zones of Sikkim, Himachal Pradesh etc, on which the government anyway does not earn any revenue. It can basically reduce the taxation on essential drugs to bring down prices further. If the basic intention is to give cheaper medicines to the poor, then the government too should play its part."

Several Gujarat-based pharma companies had set up manufacturing units in the hilly states of Sikkim, Himachal etc to take the benefits of tax holidays. When asked if companies would increasingly shift production to excise-free zones to boost margins, Doshi said, "It is an obvious move. Companies would now opt to shift production of DPCO medicines to excise-free zones so that they get a breather in terms of margins."

Industry insiders, however, say that to what extent production of medicines under price control would be shifted to excise-free zones could not be gauged at the moment.