Retail prices of most drugs marketed in the country are likely to go up by over 12 per cent from first week of November as the pharmaceutical industry is set to pass on the additional burden to the consumer with the introduction of MRP inclusive of taxes regime.

The price hikes will be reflected in the market once the batches of drugs manufactured in the MRP inclusive of taxes regime from October 2, 2006 come to the market. All the pharma companies are in the process of increasing their drug prices across the board by a minimum 12 to 12.5 per cent to accommodate the losses they may be incurring by the new MRP regime, informed sources told Pharmabiz.

They pointed out that the anomalies existed in the tax structure in various states are the main cause of the price hike with the abatement remaining at 40 per cent. The industry is of the opinion that unless the abatement is hiked to a minimum 52 per cent, there is no option other than to pass on the burden to the consumer.

The manufacturers point out that for a medicine with a MRP of Rs.100, the excise duty comes to Rs.9.79 chargeable at a rate of 16.32 per cent on Rs.60 (abatement of 40 per cent), Rs.3.85 as VAT at 4 per cent, Rs.17.27 payable to the retailer as his 20 per cent margin and Rs.6.91 is payable to the stockiest as his margin of 10 per cent.

Further, freight and other local taxes comes around 5 per cent which is Rs.3.11, selling and promotion expenses of Rs.7.46 (12 per cent), C&F commission and outward freight of Rs.7.46 (5 per cent) and packaging expenses is to the tune of one per cent which is 62 paise. Thus, the net realizable value on a Rs.100 MRP drug is only Rs.47.88 as Rs.52.12 is spent on the different heads above and the abatement is only 40 per cent.

In the new MRP regime, the manufacturers have to abide by the rules to sell drugs at a fixed price, which includes all taxes. The manufacturers, unwilling to compromise on their profit margins, are increasing the prices of the drugs accordingly, point out sources.

"While in Tamil Nadu, excise is chargeable at 8.6 per cent plus Octroi charges, in UP, excise is 10.6 per cent plus Octroi. While Chattisgarh charges VAT of 4 per cent on retail price, Maharashtra charges 4 per cent VAT on MRP. The industry is sure to pass on the burden to the consumer and the prices of medicines are sure to increase by 12 per cent once the batches of medicines manufactured since October comes to the market," noted Dr R K Srivasthava, a senior industry professional and country head - Rowa Pharmaceutical.

According to T S Jaishankar, chairman of the Confederation of Indian Pharmaceutical Industries (CIPI-ssi) noted that the current rate of 40 per cent was worked out when local taxes were collected separately and did not form part of the MRP. The new regime has raised the burden on the industry and the incidence of increase resulting from this change and some elements of costs not considered earlier while fixing the rate at 40 per cent make a difference of at least 12 per cent. The association has written the Ministry of Finance to increase the abatement to 52 per cent as an urgent measure to compensate the losses due to the new regime, said Jaishankar.