The Confederation of Indian Pharmaceutical Industry (CIPI), the national body representing small-scale pharma companies has demanded the government to hike abatement rate in calculating MRP based excise duty for the SSIs by including a proposal in Union Budget for 2007- 2008.

In a pre-budgetary memorandum to P Chidambaram, finance minister, the Confederation sought favourable action in the upcoming budget, to provide relief for 7000 SSI units in the country, by implementing the norms set by the abatement committee under department of revenue. The confederation pointed out that the norms should be included immediately whether for reasonably priced medicines or for employment of 10 lakh workers or for revenue remitted towards the concerned department.

The letter to the finance minister explains that as per the NIPER report, average trade margin of SSIs are 340 per cent, even after excluding high trade margins of 1600 per cent in certain items. With this report and the data available from the Department of Chemicals and Petrochemicals (DCPC), the SSIs are entitled to 77 per cent abatement, while the confederation is asking for a lesser hike up to 60 per cent.

"Copy of the abatement committee proceedings clearly show that they are willing to provide abatement to SSI according to trade margins including taxes. But data relied upon for rejecting 80 per cent abatement, as proposed by DCPC, is from taxable states for the year 2006, who are in an oppressed state as their trade margins are shrunk making survival difficult. Why trade margins of exempted states should be so sacrosanct that they should not have been considered to calculate the average, is not understood," the letter said.

Though several SSI Units also migrated to the tax haven region, the small players may not be able to repay even their bank loans before GST tax is levied in 2010, according to the decision of the finance ministry, while large units would leverage the maximum within a few months, in view of comparatively huge turnover. The invoice data from large companies also shows that goods are cleared at much less than 40 per cent allowed under MRP based excise. With their overall strength, large companies gain 15 to 20 per cent from these, even if they do not source goods from elsewhere, according to the confederation.

"Closure of SSI in taxable states, inter alia, owing to increase in their excise burden three times, will also benefit large industry to become the sole gainers of MRP based excise. It also states that while the large companies thus gain momentum, the small-scale companies, which have been deprived for the last two years would be badly affected," added the letter.

As Pharmabiz reported earlier, CIPI has been demanding for separate abatement rate for the SSIs, other than the rate offered to large-scale companies. It explains that the uniform rate of abatement for both the large and small pharma companies may affect the small players, as they have to keep the franchisees with a major share of the revenue. The Economic Advisory Council (EAC) under the Prime Minister had also recommended higher abatement rate for SSIs in states other than excise free provinces.