The Rs.700 crore pharmaceutical industry in Kerala may soon come to a standstill as the All Kerala Chemists and Druggists Association (AKCDA) is likely to stop drug procurement, starting next week.

The move is in protest to the state government decision to shift medicines to fifth schedule of the sales tax rules and to tax at two points, instead of the existing first point tax collection system.

Revealing the developments to Pharmabiz.com, AN Mohan, president and M Seydu, general secretary of AKCDA said the association would demand the state finance minister withdraw the move imposed in the recent Kerala budget. The association has no option but to stop procurement of drugs if the government ignores the request. "A decision in this connection was taken by the executive committee meeting held on Sunday," said Mohan.

It is to be noted that AKCDA is the only drug trade association in the state unlike in other states, and the move may virtually create a stalemate in the availability of drugs in the state.

Claiming that the move would automatically force a large number of retail chemists to close down, he noted that the state was getting about Rs.56 crore at 8 per cent tax from around 250 first sellers and that too immediately after the sales. By the new move aimed to bring the exchequer additional revenue of Rs.1.5 crore, six percent of the tax will be collected at the first point of sale and the remaining two per cent from the retailer.

He noted that the decision would not be rewarding for the government, as the collection of tax from first sale was likely to be around Rs.42 crore only. The remaining two per cent tax will be remitted to the exchequer only after the end seller sells the medicines, which at times is after a year or so of the first sale.

Further, the decision will cause an increase in operational expenses of the 9000 odd chemists in the state for maintaining files and other related works. The chemists, having daily average sales ranging from Rs.500, will have to earmark a substantial amount for the payment of two per cent of taxes, and the same will be much more than the nominal increase in collections. Further, many of the drugs from various states come with an MRP indication of 'prices inclusive of all taxes' as per the statutory norms and the traders fear the consumers may question and refrain from paying the additional tax. It was impossible for most retailers in the state to adapt to the new system and they would be forced to close down, maintained Mohan.

He noted that manufacturing, purchasing and sale of medicines are regulated by Central rules such as Drugs and Cosmetics Act and DPCO. The trade margins are fixed according to a formula adopted by the government at every stage. It is the only trade in the country in which prices and margins are fixed by the Centre and is the only commodity, which stands outside the purview of the Packages Commodities Act, permitting the dealers to collect the taxes, paid or suffered. Considering the need to legally substantiate the collections of the amount of taxes suffered by the pharmaceutical trade, provisions to section 22 (2) were inducted in the KGST Act.

Since 30 per cent of the pharmaceutical business in the state is carried out by hospitals and doctors, who stock and sell medicines outside the purview of the KGST Act, the very objective of shifting medicines to Schedule V of the KGST will be certainly defeated. Further, some of the very expensive medicines are being sold directly to the end user by the manufacturers, and the government stands to get KGST at the first point only, thereby denying the opportunity to collect tax at the last point of sale, elaborated AKCDA office bearers.