In what could be a strong booster dose to the pharmaceutical manufacturers in the New Year, the Union finance ministry may grant a hike in the abatement rate while calculating the excise duty on MRP for drugs.

Informed sources told Pharmabiz that the Economic Advisory Council (EAC) of the Prime Minister's Office and the Chemicals Ministry have strongly recommended a higher abatement hike. The Union finance ministry is likely to announce the decision either in the forthcoming budget or earlier as the pressure is mounting on from various quarters.

The EAC and Chemicals Ministry recommended to hike the abatement from the current 40 to 45 per cent for all drugs, and as a special case, from 40 to 80 per cent for the small scale pharma units. However, the finance ministry is considering a general hike in abatement which could be as high as 60 per cent for the entire industry, sources said.

The finance minister P Chidambaram has already hinted that he would be 'inclined to look' into the matter. While IDMA has been demanding 52 per cent abatement, the SSIs were pressing for an abatement of 80 per cent, citing that they rely on direct marketing leading to huge expenses.

Sources said that one major reason for the recommendation is the undue advantage enjoyed by the units in excise free zone, which created an unfair level playing field in the domestic pharma industry. The abatement hike may almost neutralize the advantages for excise free zone units, except in the case of income tax and ST exemptions. The finance ministry is also aware of the revenue losses due to the large-scale migration to excise free zones.

Earlier, the Finance Ministry was of the view that they cannot go for any arbitrary increase in abatement rate of drugs as there are common guidelines binding all sectors for calculation of abatement and the ministry would not initiate any measure that would create disparity among different sectors. However, the Ministry had hinted a nominal hike could be given after considering the variations in the VAT component across the states.