Local taxes on drugs may be merged with MRP

The government plans to cap the trade margins on generic (or unbranded) generics drugs at 15 per cent for wholesale and 35 per cent for retail business.

Announcing this at the Economic Editors' Conference in New Delhi today, Chemicals and Petrochemicals Minister Ram Vilas Paswan and officials of the ministry said they were also looking at including local taxes in the maximum retail price (MRP) to align drug prices with those of other products. At present, drugs have an MRP plus local taxes.

"Generic generics" are off patent drugs that are sold by their chemical names. Several generics are sold under brand names, with the manufacturer giving a name to their formulation. Generic generics are believed to carry margins between 1000 and 2000 per cent and constitute about five per cent of the Rs 20,500-crore domestic pharmaceutical sales.

Scheduled drugs, which come under Schedule H of the Drugs and Cosmetics Act, have margins capped at 8 and 16 per cent for wholesalers and retailers respectively. For non-scheduled drugs, the margins are 10 and 20 per cent respectively.

"Logistically, I don't see a problem in implementing this. It would be of great benefit to the pharma companies as many of the disputes between them and the trade pertain to margins. This could put an end to that," said an industry analyst.