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New tax regime hurts pharma cos

india Updated: Aug 25, 2006 14:24 IST

PHARMACEUTICAL COMPANIES of Madhya Pradesh are finding it difficult to survive due to alleged indifferent attitude of the Union Government towards the Small Scale Industries. Over 60 per cent of the pharma companies of the State will wind up operations soon, if the Union Government fails to amend the newly introduced tax regime.

The decision of the Union Government to impose excise duty on the maximum retail price (MRP) has created problem for some 300 Small Scale pharma units in the State having an annual collective turnover of about Rs 800 crore.

Many of the recognised drug companies have initiated concrete efforts to move out of the State and establish their operations in the States like Himachal Prasdesh, Uttaranchal to get tax benefits offered by these states.

The new norms, which came into effect from January 8, 2005, indicate that irrespective of whether the pharmaceutical company manufactures a product in-house or outsources it, it will have to pay excise at the rate of 16 per cent on the MRP of the drug.

This implies that pharmaceutical companies henceforth will not be able to save on excise duty by outsourcing. Till now, pharmaceutical companies used to pay 16 per cent excise duty on the ex-factory price of the medicines.

“The small pharma units lacks the marketing muscle, most of these units are into contract manufacturing. Once the multinational corporations find that there will be no transfer price advantage for them, they will stop giving business to the small units and instead expand their own capacities,” said Dr R S Goswami, president, Madhya Pradesh Laghu Udyog Sangh.

Talking to the Hindustan Times, Dr Goswami said the Sangh has also apprised the BJP MPs of the plight of pharma companies and requested them to take up the issue with the Union Government.

He said that due to the cost advantage for units situated in excise free zones, small drug manufacturers of Madhya Pradesh and other parts of the country are left with two options – either to close down and shift to other states.

It would also lead to large-scale unemployment, wastage of infrastructure and irrecoverable bad debts. In such a situation, the State Government should give some incentive package for these industries, said Dr Goswami, adding that many big companies already started winding up their operations.

He revealed that that major pharma companies of the State, including Vishal Pharmaceuticals, Fairdeal Formulations, Vostok Laboratories, Curewin Pharma, Endo Lab, Pure Pharma, Nicholas Prramai, Syncom Laboratories, Panjon Limited, Parenteral Drugs (India) Limited, Quest Laboratories, Soccrus Remedies and Devu Laboratories have either established their units in other states or in the process of doing so.

It is to be mentioned here that drug manufacturers requested the Chief Minister to communicate with the Union Finance Minister to return to the old transfer value based excise system or reduce excise duty to eight per cent on drugs under the MRP-based excise system.

When contacted, a senior officer of Commerce and Industries Department admitted that drug manufacturers are facing problem in the State.

“Industrialists have demanded incentives from Madhya Pradesh as offered to them by other States,” he added. Requesting anonymity, he admitted that due to differential tax problems, many industrialists started leaving the State and investing in other states that offer lucrative tax exemptions. The State Government had requested the Union Government to reconsider its decision but to no avail, he added.



Centre vs SSI

1 Situation arises in the wake of Centre deciding to impose excise duty on the MRP

2 Many recognised drug companies have initiated efforts to move out of the State

3 Pharma companies will have to pay excise at the rate of 16 per cent on the MRP drug