The implementation of Value Added Tax (VAT) across the country is certain to cause confusion amongst pharmaceutical companies and trade. 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. The Centre on the other hand is still to obtain the Presidential assent to the VAT Bills of the other states .It has promised that the pending bills would be cleared by March 11 such that the states will have close to 20 days for implementing the VAT.

If the Centre is not able to obtain presidential assent to the Bills of the states then there would be confusion amongst all manufacturing companies including 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 will get the Presidential assent, will have to 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. There are contention that the retailers in the three states would be charging more from the customers.

"On the face of it, the implementation of VAT could turn out to be a non-starter. There are no clear indications about the implementation from various states barring Karnataka, Andhra Pradesh and Maharashtra. Companies selling stocks to these three states will have to have a different price structure for the stocks. All this will cause confusion," claims T.S.Jaishankar, President, Pharmaceutical Manufacturers' Association of Tamil Nadu. He further laments that the whole issue is certain to cause confusion amongst the distributors/stockists and the retailers.

The trade on the other hand is also confused. "According to me, the implementation of VAT would be deferred for few more months. The moot question here is even if the VAT is implemented by the states in what shape it would be implemented. The second question is about the set-off on the closing stocks. Not many states have explained the second aspect. What would be the tax rebate on the closing stocks has also not been explained properly. While the Andhra Pradesh government has claimed it will give complete tax rebate on the closing stocks, Karnataka has maintained that there would be no tax rebate on the closing stocks for the first three months but will be applicable from the fourth month in ten equal instalments. The Tamil Nadu government is still to clarify on the same. So, if you look at things, there is a lot of non-synchronisation," claimed Suresh Ranka of the Pharmaceutical Distributors' Association (PDA), Chennai.

In Tamil Nadu, if VAT is introduced there would be a 4 to 5 per cent increase in the prices of drugs. Currently the sales tax on drugs is 10.5 per cent in the state. The retailers charge 8 per cent from the consumers on and above the maximum retail price as mentioned. Suresh Ranka opines that the introduction of VAT would mean there would be an increase in price of the drugs by 4 to 5 per cent. "Here the retailers would be in confusion on what they have to charge from the consumers. Similar is the story with other states where different rates of sales tax existed".

Meanwhile, the Tamil Nadu government, whose bill is pending with the Centre, has announced that it would not implement the VAT from April 1, 2003, if other states do not introduce the same. The Tamil Nadu government recently cleared its Bill for submission to the Centre for the Presidential assent. According to the Finance Secretary, Girija Laskhmi, the Tamil Nadu government is adopting the wait and watch policy. "We have sounded that we will not implement VAT if other states do not do so. But once they do so we will also do it," she added.