The department of pharmaceuticals (DoP) has asked the Union Finance Ministry to raise the pharma SSI exemption limit from Rs 1.5 crore to Rs 5 crore and also to increase the abatement rate from the present 35.5 per cent to 60 per cent. According to industry sources, around 95 per cent pharma SSIs are below Rs 5 crore turnover.
With the Damocles' sword of withdrawal of stimulus package announced by the centre in December last year hanging over their heads, the SSI units are worried that if the government withdraws the package and raises the excise duty from the present 4 per cent to 8 per cent, they will be in great disadvantage vis-à-vis the manufacturers in tax-free zones like Baddi.
The central government had, in December last year, slashed the excise duty from 8 per cent to 4 per cent for all industries as a stimulus package to tide over the financial mess triggered by the global financial crisis. For the pharma SSI units, the reduction in excise duty by 4 per cent had provided a level playing field compared to the tax-free zones and they had started getting business back. But as the Indian economy is back on tracks, there is talk in the corridors of finance ministry in Delhi that the government may hike the excise duty to 8 per cent, if not 12 per cent. That will put the pharma SSIs in deep financial trouble.
Sources said that though there is resistance from the Finance Ministry on the DoP's recommendation on the plea that SSI limitation cannot be sector specific and cannot allow for only one sector, the DoP is learnt to have driven home the point that pharma is the only sector which is regulated by the government and is also under price control.
The hike in abatement rate also has been a long pending demand of the SSIs. In fact, the Chemicals Ministry had made persistent efforts for removal of tax anomalies and proposed to increase the abatement rate to 80 per cent (based on over 300 per cent trade margins). But the proposal was rejected by the Finance Ministry for the reason that more than 70 per cent would result in payment of entire excise by Cenvat. Subsequently, the prime minister had directed the Finance Ministry to increase the abatement rate for the SSIs to 60 per cent which was also dropped by the Finance Ministry.