As the implementation of Value Added Tax (VAT) across the country is imminent, the wholesale traders have drastically reduced their drug purchases from companies. The uncertainty on the price increase due to the additional 4 to 5 per cent tax when the VAT is in place, has prompted the traders to cut the purchases of drugs especially slow moving products.
According to sources in the All India Organisation of Chemists and Druggists (AIOCD), the wholesalers are not ready to take the risk of carrying the extra tax on the stock purchased before the implementation as they are not sure that whether the co0mpanies would bear the same or the government will wave off the same.
The AIOCD sources said that the wholesalers are trying to make their inventory position nil by March 31 as the fresh purchases can be made only after the clarity emerged on the intricacies of VAT. The traders lamented that at the current situation they do not expect the pharmaceutical companies would agree with sudden retail price increase as the market is highly competitive now.
At the same time, in most of the cases, the state governments are either not ready with the tax policy or have not announced their approach on the additional tax while selling the already purchased stock.
However, the Mumbai-based pharmaceutical companies have already witnessed to a drastic fall ranging between 10 to 40 per cent in sales following the low purchase move by the trade. "On an average basis the companies are having sales fall of 10 to 15 per cent,'' sources from the industry.
While Pfizer has already registered a 15 per cent reduction in the sales, especially the high cost products, Unichem, Lupin and Ipca had a sales fall of more than 20 per cent during last three weeks. The sources from Unichem said that total sales fall by the end of March may go up to 40 per cent if the uncertainty continues on VAT implementation.
Although the finance minister announced that VAT would be introduced throughout the country from April 1,2003, most states barring Karnataka, Andhra Pradesh and Maharashtra have just submitted their draft legislations to the Centre detailing about the implementation of VAT. VAT will be a multi point tax of 12.5 per cent.
If the Centre is not able to obtain presidential assent to the Bills of the states, there is utter confusion amongst pharmaceutical companies and trade over the collection of taxes. Companies selling stocks to three states which have maintained they would be introducing VAT from April 1, 2003, and those states which is still not ready with the implementation part, would have differential price structure when compared to selling stocks to other states in the country. Consequently, the retailers in these three states would also be in a confusion regarding the taxes to be charged from the customers.