NEW DELHI, 16 MARCH: Drug prices will rise marginally as the government has raised excise duty both on chemical inputs and finished products in the Budget 2012-13 presented on Friday.
The duty on finished products (formulations) has been increased from 5 per cent to 6 per cent, while on the active pharmaceutical ingredients (APIs) it has been raised by two per cent to 12 per cent.
Commenting on the development Pfizer Ltd Managing Director Kewal Handa said: "The pharmaceutical industry does not have much to cheer about in this budget. The one per cent increase in excise duty will result in a 1.5 per cent increase in drug price."
"It is ironical that on one side the government is trying to reign in prices of drugs and on the other increasing taxes and duties on drugs," he added.
Dr Reddy's Laboratories chief financial officer Umang Vohra today said the marginal increase in excise duty might make some of the drugs costlier.
"The raise in service tax and excise duty to 12 per cent will lead to some items getting costlier," Vohra said. "The industry wanted a (tax) harmony between active pharmaceutical ingredient (API) and finished dosage for improved cash conversion cycles which it did not get. I think marginally increased excise rates will increase the rate of some drugs in terms of pricing," he said.
However Lupin said that it does not see "any substantial increase in drug prices due to the hike in excise duty from 10 to 12 per cent."
The pharma industry had demanded rationalising the inverted duty structures where formulations were taxed at 5 per cent and API at 10 per cent which for integrated manufacturers results into a cumulative CENVAT.
Vohra also said there was no clarity on provisions that relate to weighted tax deduction on account of research and development (R&D).
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