The central government may have to take precautionary steps to avoid possible shortage of drugs during September-October on account of the transition to MRP inclusive of taxes on medicines from October 2, 2006. A similar situation had emerged at the time of value added tax (VAT) implementation when the trade attempted to empty their inventories for an easy transition into the new tax regime.
According to pharmaceutical trade sources, the shortage of drugs could range from marginal to as high as 30 per cent. The drug trade associations however downplay the possibility by saying that there cannot be any crisis and the reduction in inventory, if any, should be seen as a natural hic-up associated with any change in existing system.
Association sources felt that the transition would be smooth in all states other than Uttar Pradesh and Tamil Nadu, where VAT is yet to be implemented. "While the 4 per cent VAT is applicable to most parts of the country, in UP and TN, the taxes may go up to 10 per cent. The companies may suffer some financial losses in these states, but only of temporary nature, as the new drug policy is to offer them higher maximum allowable post manufacturing expenses (MAPE)" they informed. On the positive side, the introduction of MRP inclusive of taxes will put an end to the inter-state movement of drugs and thereby reduce the chances of spurious drug entry, they said.
Meanwhile, the optimism of the trade is not shared by the industry. The industry sources feel that the government has done injustice to the drug manufacturers by not clarifying the method of arriving at the MRP. "Unless the government comes out with clarifications on Para 7 of DPCO, the notification is to create more trouble than solace to the industry," sources said. They also hinted that the industry associations may fight tooth and nail to bring in clarity on the matter before October 2 deadline.
As Pharmabiz had reported, the industry associations had several discussions with the department of chemicals and National Pharmaceutical Pricing Authority (NPPA) on the need for a proper MRP determining formula. However, it failed to achieve anything, laments the industry representatives.
The industry had asked the chemicals ministry to ensure a substantially high abatement to include the burden of taxes also within sale price. The industry is expecting the government to allow some percentage of MAPE to be added to the scheduled price to include all taxes and levies before MRP inclusive prices can be printed on the labels.