The SME Pharma Industries Confederation (SPIC) has asked Finance Minister P Chidambaram to do away with the MRP-based excise on medicines to bring down the prices of medicines. It also asked the government to implement Dr. Rangarajan's EAC recommendations and also to reduce excise duty on medicines from 16 to 8 per cent.

In its pre budgetary memorandum to Finance Minister P Chidambaram, the SPIC said that the MRP-based excise, levied on medicines in Jan 2005 to increase revenue and to get rid of evaluation disputes simultaneously providing a fiscal deterrent on higher MRP, has proved to be counterproductive.

Many pharmaceutical units had migrated to tax holiday states to evade the increased tax burden which rose from 10 per cent to about 30 per cent and also the fiscal deterrent on MRP. Instead of an increase, revenue loss shall be to the tune of Rs.1000 crore in 2007-08 as it dipped Rs.300 crore in 2006-07 from a peak of Rs.2200 crore in 2005-06 as many units were in gestation.

Instead of decreasing, prices have skyrocketed. A negative race has started whereby units in tax holiday states outdo each other with higher and higher MRP to woo the contract manufacturers and traders. NIPER has confirmed in its report to the C&F Ministry that prices of some similar products when manufactured in tax holiday states are 326 per cent higher when compared to non tax exempt states.

National Pharmaceutical Pricing Authority (NPPA) is helpless as proliferating new brands are not under its purview. Apart from that, some companies continue to blatantly violate the Drug Price Control Order from tax holiday states.

For example, 10 tabs of norfloxacin 500 mg covered under DPCO should bear MRP of Rs.9.50 including all taxes when produced from tax holiday states. But some companies from tax exempt states continue to print MRP of Rs.46 in violation of the DPCO. This could not be possible from non tax exempt states because the product having ex factory price of Rs.8 would be subject to excise duty of about Rs 3, which when added to ex factory price is not as profitable to woo the retailer and hence all sourcing is from tax holiday states, the memorandum read.