Karnataka is all set to implement VAT from April 1, 2005 despite opposition from the chemists and druggists association on its implementation. Although the chemists are objecting to VAT they are not participating in the nationwide strike against the new tax.

“Although we are not prepared to accept the VAT as the time is too short to understand the rules and regulations which are not clear to anyone, still we are not participating in the nationwide strike to protest against its implementation because any tax reform has its teething problems," stated V Hari Krishnan, president, Bangalore District and Druggists and Chemists Association (BDDCA).

The three main grouses against VAT are multi point tax collection, set-off price on closing stock to be fixed at 4 per cent and the serious penal provisions for failure to keep the records.

One of the concerns of VAT implementation is the lack of preparedness of trade as the time is too short to understand the rules and regulations which are still unclear and the cumbersome documentation.

The new VAT on closing stock is 4 per cent. The chemists feel that the set-off should have been given as 12 per cent for the paid-up goods. To retrieve the balance 8 per cent, trade has to submit sales details and the set-off charges will be paid in instalments by the government between July to December '05. “But this process is viewed as complicated because it is difficult for retailers to account for increased and frequent sales made for a single tablet or ampoule, explained Arun Mehta, member BDDCA.

The penal provision proposed for the violations are draconian and the failure to maintain books and documents will attract penalty of not exceeding Rs 5,000 plus Rs. 200 per delay for such period.

In case during an audit after three years, an unintentional mistake is found, then the penalty will be Rs 5,000 plus Rs. 200 per day for the three years which makes it impossible for the trade to survive, stated Harikrishnan.

He reiterated that the Association demanded implementation of VAT be postponed by six months for proper education, amendments of rules so that the implementation is properly done.

Even members of the Karnataka Druggists and Chemists Association said that traders feared the documentation as cumbersome as they were more comfortable with the purchase books and cash registers.

BDDCA have submitted a memorandum to the commissioner of commercial taxes requesting for VAT on MRP at the first point of sale instead of multi point collection. They explained that the complexity of trade where 30,000 formulations with different prices and expiry dates stocked at chemists, made it impossible to conduct sales by accepting the proposed multi point rules of VAT. "Instead of monitoring 25,000 files of the pharmacy trade, it would be easier to examine 200 files of first sellers. Tax at first point of sale to ensures free flow of medicines to the customers."

The turnover for pharmacy trade in Karnataka is pegged at Rs 2,000 crore and the government would garner Rs 80 crore via VAT through Multi point collection from 25, 000 chemists. In this background, VAT collection from the first point sales manned by 200 dealers would be simpler and transparent because even unregistered dealers, could not escape. It would also allow faster realisation of taxes with no bottlenecks and the job of the government to monitor large number of files would also be reduced to 200 dealers, they asserted.

According to Ashok Kumar C Manoli, IAS, commissioner of commercial taxes, commercial tax department, Karnataka, the transparency which VAT would bring in would create a trust among the dealers and the commercial tax department. There is no difference between the Karnataka sales tax and the VAT except for the input tax credits for VAT.

Since there was no annual return or annual assessment but only monthly returns to be filed in VAT, it would cease the troubles of going to the commercial tax office. Frequent visits of drug inspectors will also be less, informed DR Balaji Singh, additional commissioner, commercial tax department.