Pharma excise collections hit a low

The Union Finance Ministry's plans to boost the central excise duty collections from pharmaceutical products, through a correction in the duty evaluation criteria two years ago, seems to have backfired as the collections hit a three-year low in 2006-07, which saw record growth in domestic pharmaceutical sales.

While the ministry is yet to have its annual data ready, excise duty collections from pharmaceuticals till December last year were Rs 1,455.37 crore as against Rs 2,265.12 crore for year 2005-06.

The annual excise duty earnings from drugs and pharmaceuticals were Rs 1,616.4 crore and Rs 1,434.45 during 2004-05 and 2003-04, respectively. Meanwhile, this year domestic prescription drug market grew by 18 per cent to Rs 27,333 crore from Rs 23,243 crore in 2005 (ORG-IMS).

It was on January 7, 2005, the ministry announced the shift in excise duty calculations based, on ex-factory prices to that of maximum retail price (MRP) of drugs.

The ministry's rationale for the change was that the calculation of excise duty based on MRP "" after giving upto 40 per cent abatement to take care of marketing expenses "" can result in higher excise revenues. It felt that the decision would compel the companies to end the practice of printing high MRP (thereby burdening the consumer) and pass on high trade margins to push their products.

The twin objectives were that of increased revenue and reduced medicine price. The department of revenue had even said the revenue loss under the ex-factory price-based excise regime was due to "wide variations between ex-factory prices and the assessable value of drugs for excise duty purposes resulting in disputes and litigations".