The VAT rules that are being framed by the state governments across the country, if approved in the current form could stand against the existing Central Law pertaining to the right of a retail chemist for 16% margin on sale of drugs. While the Drugs Price Control Order (DPCO) has categorically allowed a trade margin of 16% to the retail trade excluding the excise duty, the VAT derived price margins could drop by a minimum of three percent, it is learnt. The pharma trade circles are looking forward to an ironic situation where state rules going to stand against an existing Central Act.

Speaking to Pharmabiz.com, representatives of various state pharma trade associations pointed out that the anomaly could also lead to discrepancy in drug prices in the retail segment.

What worries them are the dual nature of taxation which segregates small scale players and large scale traders based on their turnovers. "A retailer can be either a VAT registered trader or a person paying composite tax. While the multi point taxation system of VAT compels one segment of the trade to collect taxes from the consumer, a composite taxpayer need not collect the tax at the last point. This itself would lead to a price difference in retail outlets of the same locality," they say.

Interestingly, each state government has come out with its own recommendations on turnover limits for the inclusion of a trader under VAT registration. Of a dozen states that have come out with draft VAT rules, none of them are exactly identical. This means further fragmentation, as traders with same turnover in different states could have to go through different set of rules and regulations.

The druggists and chemists in various states have already come forward to place the issue before the concerned authorities.

According to A N Mohan, president, All Kerala Chemists and Druggists Association, the state finance minister has agreed to give a considerate view on all the issues related with pharma trade. He said that the government officials are also convinced of the need to consider sale of drugs separately from other commodities.

Ramesh Chandra Gupta, president, Andhra Pradesh Chemists and Druggists Association said that the state department has been informed of the difficulties that are to arise out of a decision to include drugs in the general category.

J S Shinde, general secretary All India Organisation of Chemists and Druggists (AIOCD) pointed out that their primary aim would be to see the reduction of tax on drugs. "The issues related with the price margin would certainly be taken up by the association. But only after all other ways for putting a uniform price structure for drugs in the country fails", he said.