The Hindu : Business : Centre defends excise levy on retail price of drugs

Online edition of India's National Newspaper
Wednesday, Feb 23, 2005

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Centre defends excise levy on retail price of drugs

By Our Special Correspondent

NEW DELHI, FEB. 22 . In defence of the change introduced in the basis of assessment for the levy of excise duty on drugs and pharmaceuticals, the Centre today declared that the switchover was found necessary on account of the "overcharging by drug companies'' at the retail level and the "abnormally high trade margins'' that were prevailing, particularly in respect of generic drugs.

A Finance Ministry statement here said while the excise on drugs and medicines was levied on ad valorem basis, the duty, till January 7, was being worked out on the basis of the ex-factory transaction value of the drugs.

In the case of drugs manufactured by loan licensees, in particular, it was noticed that wide variations existed between the declared ex-factory price of the products, on the basis of which excise duty was paid, and their retail sale prices.

What this meant was that the Government was being denied a higher revenue by way of excise owing to the low ex-factory prices while the drug companies were utilising this "gain'' to pay higher trade margins at the wholesale and the retail levels.

To check such indirect gains for the drug companies, the Government introduced a change in the basis of excise levy with effect from January 8 under which the excise duty on drugs is charged on the basis of their retail sale prices.

This, however, was done after providing an abatement of 35 per cent from the declared retail price.

In effect, the excise levy is being currently charged on 65 per cent of the retail price declared on the pack.

At present, 92 commodities are assessed to excise duty on the basis of retail sale price.

The abatement of 35 per cent, the statement said, takes into account a 10 per cent margin for the wholesaler, a 20 per cent margin for the retailer and the statutory levies.

In effect, the excise levy is being charged at 16 per cent on 65 per cent of the retail price of these generic drugs and the standard trade margins and statutory levies are excluded from the retail price for the purpose of calculating the duty.

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