Despite strong protests from the industry and trade, the government of Kerala, has implemented the earlier proposed multiple point sales tax on drug products.
As per the new Sales Tax Rules, which has come into effect on April 2, six per cent ST and 15 per cent of it as additional sales tax had been levied during the transaction between the manufacturer and the wholesaler (first sale) instead of the existing norms of 8 per cent plus 15 per cent additional sales tax imposed during first sale. The remaining 2 per cent and its additional ST was to be levied after the trader sells the product.
However, the drug industry and the trade in the state has already declared a boycott of the new tax rule by and also the government's decision to shift medicines from the first schedule to fifth schedule of Sales Tax rules thereby imposing the two-point taxation.
Nevertheless, the industry sources while talking to Pharmabiz soon after a high level meeting with the state finance ministry officials on April 1, informed that the though the industry and trade expected that the government would revoke the decision till the last moment, it is now shocked with the government's move.
It may be mentioned that since the government announced the proposal a couple of months ago there were strong protests from the traders as it may lead to price increase and various other legal problems between the trader and customers related to existing MRP norms.
Opposing the introduction of multi-point taxation, the Ayurvedic medicine manufacturers in Kerala had earlier cautioned that it would cause increase of drug prices. The industry had stated that the Ayurvedic industry, which is already facing various pressures in the production and marketing front, would have suffered further if the new taxation brought up the prices.
According to Dr. D. Ramanathan, general secretary, Ayurvedic Medicine Manufacturers Organisation of India (AMMOI), the new taxation will create further stalemate in the industry, which is already in trouble due to various reasons.
He said that the industry currently suffers from problems like high prices and shortage of raw materials, besides various market factors. The proposed ST has come as a further blow to the Ayurvedic industry, which will definitely cause to increase prices of Ayurvedic medicines.
The Association had also pointed that the two point taxation would have caused medicine traders to face legal problems, as the traders will be forced to collect prices above the Maximum Retail Price. However, since the medicines are manufactured in accordance with the Central Government's Packaged Commodities Act and Standards of Weights and Measures Act, the M.R.P. is a mandatory indication on the label.
The AMMOI and other drug trade Associations in the state had also argued that the two point taxation was also not as rewarding for the Government. In the existing set up, the Government gets revenue from 8 per cent ST and its 15 per cent Additional ST immediately after the first sale. In the proposed tax split up, the traders will give two percent ST, which is 25 per cent of the ST due to the Government, after the sale of medicines.
However, the Sales Tax Department has said that the price increase due to the new taxation procedure will not be allowed by any chance and there will be severe measures to prevent the price increase in commodities especially drugs following the fresh rules.