The Empowered Committee of State Finance Ministers, which met here today, has decided to exempt all life saving drugs from the Value Added Tax (VAT) and to bring down VAT to 4 per cent for all remaining drugs.

As per the fresh decision taken by the Committee, all drugs would come under 4 per cent VAT category except the life saving drugs. The Committee has also recommended to prepare a new list of life saving drugs for the tax purpose, which would be uniformly accepted all across the country with zero per cent VAT.

However, the committee would meet again on April 29th and 30th to take a consensus on the list of life saving drugs. The Empowered Committee has also decided that dealers with a turnover of Rs 5 lakhs wouldbe exempted from VAT. For dealers with turnover of Rs 5-40 lakh, it was decided to have a Simple Composition Scheme with only 1.0 per cent tax on gross turnover. These decisions are to affect pharma trade also. Whilethe changes are intended to keep out the small-scale traders out of VAT requirement, its implication in drug trade has to be seen.

The Committee had earlier put medicines under the 12.5 per cent tax bracket. The reduction of tax on drugs was one of the major demands of all Industry and trade associations in the country.

The uniform taxation on drugs would be implemented from June 1, the new deadline announced by the committee for enabling the states to switch over to the new regime. At present 16 states are known to have agreed for introducing VAT system from June 1. The day's meeting was specifically meant to bring in more clarity to the gray areas regarding the tax rates on various commodities.

Speaking to www.pharmabiz.com in Mumbai, Yogin Majmudar, president, Indian Drug Manufacturers' Association (ADMA) said that this is a welcome step towards lowering the drug prices ensuring common man's better access to medicines. "Though IDMA and the trade Associations have been demanding the same tax structure for drug in the VAT regime, now only the government has realized the clear objectivity of keeping low taxes and duties on medicines especially on life saving drugs," he said.