Karnataka Government has passed the State Ordinance No. 1 of 2005 of the Karnataka Value-added Tax (Amendment) Ordinance 2005 here on Wednesday which called for VAT on MRP (Maximum Retail Price) at first point based on repeated requests from the Bangalore District Chemists and Druggists Association after a series of extensive discussions that have been going on for the last 45 days.

The Amendment of Section 4 of the Karnataka Value-added Tax Act 2003 (Karnataka Act 32 of 2004, hereinafter referred to as the principal Act after sub section (3), will come into to force with effect from April 1, 2005. The new ordinance states that pharmaceutical drug dealers may pay tax on the sale of medicinal and pharmaceutical preparations on the Maximum Retail Price indicated on the label of the container or pack thereof as fixed for such goods under the Drugs Price Control Order (DPCO 1995 at the first point of sale.

“With this amendment, Karnataka will follow the collection of VAT on MRP at the first point of sale of drugs which is already pursued by states like Rajasthan, West Bengal and Haryana. It would enable free flow of drugs without any hassles and hurdles and would be beneficial without compromising on any loss to the State revenues,” said V Hari Krishnan, president BDCDA.

The amendment follows after the Bangalore District Chemists and Druggists Association submitted a memorandum to the Commissioner of Commercial Taxes in Karnataka, Ashok Kumar C Manoli requesting for single point entry of VAT on MRP.

The memorandum stated that there are more than 25,000 chemists and druggists in the state who directly come under the net of VAT. The suggestion put forth by the BDCDA was that instead of monitoring and scrutinising 25,000 files, the best solution would be to monitor not more than 200 files who are the first sellers in the Karnataka and make the trade free by imposing VAT on MRP at the first point of sale to ensure free flow of medicines to the patients.
 
The end process and trade margins on drugs are fixed and controlled by the government through the DPCO which permits trade to recoup the taxes suffered, it explained.

Considering the complex nature of the trade where around 30,000 formulations in different forms are available, besides allied products with varied rates and expiry dates are to be stocked by the pharmacy outlets, it is highly impossible to conduct sales by accepting the proposed rule of VAT, noted the memorandum.

The collection of VAT on MRP at the first point of sale on drugs did not in any way violate or contravene any provisions of proposed VAT, informed Hari Krishnan.

With this Ordinance, wholesalers and retailers of pharmacy trade in the 27 districts of the State will be relived from all paper work, he averred.