Excise duty on drugs likely to be halved

TAX RELIEF ON THE ANVIL

The Indian pharmaceutical industry that is forking out an excise duty of 16 per cent at present, may get some solace in the near future. The government is considering slashing the duty to eight per cent in the wake of strong resentment from the industry.

Speaking to Business Standard, Satwant Reddy, secretary, department of chemicals and petrochemicals, Government of India, said, "Various states have been complaining that they have been losing out pharma companies to places like Baddi in Himachal Pradesh because of the tax holiday there. We are, therefore, considering reducing the excise duty to eight per cent to arrest this problem."

In January 2005, the government had changed the excise norms for the pharmaceutical industry so that the excise duty of 16 per cent was levied not on the ex-factory price but on the maximum retail price (MRP) after an abatement of 35 per cent. However, pharma companies in the tax-free zone continue to enjoy the tax holiday.

Pharmaceutical units have been rushing to Himachal Pradesh, Uttaranchal and Jammu & Kashmir following the Centre's decision to make these states excise-free zones.

According to industry estimates, more than 300 units from Andhra Pradesh, Gujarat and Maharashtra have already set up shop in these northern states due to incentives like exemption of central excise and waiver of sales tax and income tax.

Earlier, Andhra Pradesh Chief Minister Y S Rajasekhara Reddy had written to Prime Minister Manmohan Singh requesting him to consider either stopping the fiscal incentives that are being offered to the three states or offer the same incentives to the most backward districts in Telangana, Rayalseema and coastal Andhra in the state.

The Central government is, however, contemplating reducing the excise duty to eight per cent so that the benefits that the pharma companies accrue in the northern states are considerably reduced.