Indian Drugmakers Win New Excise System Rebate

In a partial victory for local drugmakers, India's government has reduced the level at which taxes are chargeable on drug products from 65 percent to 60 percent of the retail price printed on drug packets. Many Indian pharmaceutical companies had campaigned hard against recent increases to the tax burden on the low-cost local drug sector.

Prior to Jan. 8 this year, taxes had been charged on the basis of the factory exit price of drugs, but this was changed to a calculation based on final selling prices. The changes were intended to reflect the fact that the mark-up some retailers charge on some drugs can be as much as four times the factory exit price. This differential also accounts for the country's system of imposing a maximum retail price (MRP) on many drugs to control prices.

The government now insists that the new tariff level will allow producers, wholesalers and retailers sufficient margin to remain profitable. However, a gross excise rate of roughly 20 percent chargeable on 60 percent of the total retail price is still a substantial increase on previous conditions, and is unlikely to satisfy the industry. Companies have long argued that the government should offer the industry targeted tax relief, given the costs of specialist storage and the uniquely short shelf life of drugs, as well as the pharmaceutical sector's importance in India's wider economy. Several manufacturers have already shifted production to regions that offer breaks on the new MRP-based tariff regime.