With the Kerala Government agreeing to follow the West Bengal model for collection of VAT based on MRP from first point of sale for drugs, the drug traders in Kerala have called off their strike, started February 16.

The strike had caused shortage of some essential medicines in some parts of the state, according to drug control officials.

Sources told Pharmabiz that in a crucial high level meeting convened this week by Kerala Chief Minister Oommen Chandy and attended by the office bearers of the All Kerala Chemists and Druggists Association (AKCDA), the State Government assured the traders to collect VAT based on MRP from first point of sale for drugs, as demanded by the traders. The meeting entrusted the dug traders and the officials to collect detailed information on how West Bengal and the State of Haryana and Rajasthan plan to implement VAT, and the state could follow their model with necessary adjustments if required.

The meeting was also attended by Vakkom Purushothaman, finance minister, K K Ramachandran, health minister and the state sales tax commissioner.

Following the meeting and assurance from the authorities, AKCDA has decided to call off the strike, said top level AKCDA sources.

It is to be recalled that the drug traders in Kerala started strike from February 16, soon after the government decided to implement VAT in the state since 1st April. The Kerala drug traders contended that it was practically impossible to implement VAT in Kerala in the present form. Unlike other commodities, the government decides prices of drugs as numerous medicines are under DPCO, margins are pre-fixed, and it is impossible for the traders to maintain data on 5000 odd brands. Kerala has about 1500 dealers, and about 250 of them account for 95 per cent of the drug trade in the state, valued about Rs 800 crore. With the present system, the government would collect 24 crore in the first stage of 650-crore odd first purchase, 2 crore from dealers and 6 crore from the retailers. This will necessitate the retailers to maintain registers/ computerization and have to face chaos on different taxes for different brands.

More than 25 per cent of the drug supplies are directly being sent to hospital pharmacies by companies and this may cause evasion of taxes and loss of revenue to the government. The State Government also lacks adequate manpower to man prompt payment by the retailers. AKCDA suggested that the government could collect Rs 32 crore (4% of 800 crore turnover) from the first point of sale itself, as just 250 wholesalers account for 95 per cent of drug sales in the state.