The Federation of Drug Traders of Andhra Pradesh (FEDTAP), affiliated to AIOCD, has urged the State Government to exempt the drug trade from the Value Added Tax (VAT) Act which is to be introduced from April 2005. The druggists and chemists in the state numbering about 37,000 had sent representations to the government, but it is yet to get any positive feedback on this issue.

"We are not opposing the imposition of VAT per se, but the drug trade is a peculiar case. Under the VAT Act, the drug traders are divided into three groups based on the turnovers: those having a turnover of Rs 5 lakh, those in the range of Rs 5-40 lakh and those over Rs 40 lakh. Only the third category is covered under the VAT Act," D Krishna Reddy, general secretary of FEDTAP told Pharmabiz.

He said, as 70 per cent of the chemists and druggists in the state fall under the first two categories, a wrong impression is created that the drug trade is not much affected.

The druggists are obliged to follow the Drug Prices Control Order (DPCO) passed by the Union Government which would allow them to collect all taxes paid, but under the VAT Act, which is illegal.

States such as West Bengal have decided to exempt the trade from the purview of VAT Act and impose single-point taxation at the level of manufacturer. The Andhra Pradesh Government should also follow the same, he opined.

In respect of the uniform sale price by all the dealers under DPCO which authorizes all dealers to collect all the taxes paid or payable contradict the core concept of VAT Act which is only aimed at prevention of evasion and rationalization of taxes with provision for input tax credit to only high turnover (Rs 40 lakh) dealers offering further carrot with the right to collect output tax. There is a hidden cost of lot of documentation and preservation of records.

For non-VAT dealers falling between Rs 5-40 lakh range, government claimed freeing them from maintenance of all documentation and preservation of records but pay one per cent tax on turnover. In this case, a trader loses the tax paid by him and is denied further from collecting any tax besides having to pay one per cent tax on turnover. These traders have to sell the medicine at a different price from that of a VAT dealer, he pointed out.