The finance ministry has put on hold a proposal to withdraw customs duty exemptions on life saving drugs. The ministry has stated that the proposal should be based on a comprehensive study regarding the incidence of failure to pass on the benefit to consumers and that it should be undertaken as part of the Budget exercise.
The proposal, moved by the department of chemicals and fertilisers (DC&F) stated that exemptions should only be given if importers are willing to subject the drugs to price control and pass on the benefit of duty exemption to consumers. The DC&F had claimed that the benefit of this exemption is currently not passed on to consumers. Also, the loss to the exchequer on account of these cumulated exemptions is estimated at over Rs 200 crore each year.
The revenue department has, however, pointed out that while the health ministry had supported the DC&F's proposal not to recommend any further exemptions unless importers were willing to subject the exempted drug to price control, they have been recommending fresh exemptions to the revenue department. The most recent case is the health ministry's recommendation to exempt all anti-AIDS drugs from customs duty.
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The two ministries have been asked to evolve a consensus on the approach to customs duty exemptions and also to conduct a comprehensive study on the actual incidence of "pass through" of exemptions. Once this is done, further discussions will be taken up as part of the Budget exercise.
Currently 254 drugs and formulations are exempt from customs duty on the ground that these are "life saving" drugs.
The DC&F had written to the finance ministry stating that the importers of these medicines do not have to sell them at a declared price. Even in cases where the drug is covered by the Drug Price Control Order, there is no way in which the government can be sure that the benefit of the exemption is passed on to the consumer.
The DC&F had recommended that the government should withdraw the customs duty exemption provided to importers of life saving drugs from any prospective date and then direct all persons wanting duty exemption beyond this date to get the price of the product, (if not already fixed) fixed by the National Pharmaceutical Pricing Authority.
The NPPA could then follow a summary procedure for determination of tax exempt price of the imported drug. No imports should be allowed after the prescribed date, till the price is fixed by the NPPA, the DC&F had recommended.