The Government of India has increased the abatement rate for drugs while calculating excise duty on MRP from 40 per cent to 42.5 per cent, according to a notification issued by the Ministry of Finance recently.

As per the notification, the Central government has made the significant amendment in its notification dated January 7, 2005, by the Ministry of Finance (Department of Revenue) No. 2/2005-Central Excise (N.T.), to enhance the abatement rate to 42.5 percent. The new rate is applicable in calculation from February 1, 2007.

The Central government had already amended the said notification once in February 23, 2005 to increase the former rate of 35 per cent abatement of excise duty to 40 percent, on patent or proprietary medicaments and those other than patent or proprietary medicaments which are exclusively Ayurvedic, Unani, Siddha, Homoeopathic or Bio-chemic systems.

It is to be noted that the amendment is at a time when the industry associations are demanding a hike on abatement up to 50 percent, either through a notification or through budgetary reforms. The Confederation of Indian Pharmaceutical Industry has been demanding for an abatement enhancement up to 60 to 80 per cent, with the support of the recommendations of Economic Advisory committee (EAC) report.

Experts in the pharma industry feel that the enhancement of 2.5 per cent in abatement on MRP based excise duty is to correct an aberration on the existing calculation system due to non-uniformity of excise duty in all parts of the country.

By the introduction of MRP inclusive of all taxes regime, the non-uniformity of excise duty between the VAT-implemented states and others has differentiated calculation of MRP in various states. The increase of abatement rate to a meagre 2.5 per cent is to bring parity in calculation of excise duty in all the states, according to an industrial expert.

According to the notification, G.S.R. 10 (E) published in Gazette of India dated January 7, 2005 together with an explanatory memorandum seeking to extend the provisions of section 4A of the Central Excise Act, 1944, the drugs and medicines would be provided with 35 per cent of the retail price as abatement for the purposes of determining the assessable value on which excise duty is payable. It is the amendment of this notification that has enhanced the abatement rate from 35 to 40 per cent and now to 42.5 per cent.