The decision of Tamil Nadu government to implement Value Added Tax (VAT) regime, from January 1, 2007 has been welcomed by the pharmaceutical trade and industry bodies.

The pharmaceutical trade and industry organizations in the state have been waiting for the state government decision for long mainly on account of higher rate of sales tax (10.25 per cent) and expected implementation of MRP inclusive all taxes regime from October 2. With the TN's decision now, Uttar Pradesh and Pondicherry are the only other states which are yet to adopt VAT regime.

According to the finance minister, the state will soon come out with a draft policy and will implement it from January 2007 considering the long pending demand from various manufacturing and trade bodies including Confederation of Indian Industry and Federation of Indian Chambers of Commerce and Industry.

The State has decided to put a threshold limit of Rs.10 lakh for exemption from registration and payment of tax under the State Act. This is expected to benefit around 45,000 small traders, according to the Finance Minister K Anbazhagan. The State would request that the Centre compensate 100 percent of the revenue loss occurring in the transition period.

The pharma bodies like Tamil Nadu Pharmaceutical Manufacturers Association (PMA), Indian Drug Manufacturers Association (IDMA), Tamil Nadu Chemists and Druggists Association (TNCDA) and Tamil Nadu Pharmaceutical Distributors Association (TNPDA) have also welcomed the announcement of the new regime.

The Tamil Nadu Pharmaceutical Manufacturers Association (PMA) expressed its relief over the decision though the sources said that the Association was in hope that the new regime would be implemented from 2nd October, 2006, the time limit for the implementation of MRP inclusive all taxes regime. They said that the industry has to make temporary arrangements to tackle the issues in between the implementation of the two regimes, the MRP inclusive all taxes and the VAT.

IDMA said that the new regime should help the industry to join the race with other VAT implemented states. Implementation of VAT may exempt the large companies from one percent turnover tax, now leveraged from companies which have a turnover more than Rs 10 crore per annum.

TNCDA, the state body of AIOCD, said the Association will insist on implementing taxation from the first point. But, TNPDA said that it would demand a multipoint taxation.

The PMA, TNCDA and TNPDA are planning to submit representation to the government with suggestions on the modality of implementation, which the state has yet to reveal the decision on. Sources from the associations insisted strict vigilance in transition process, while the TNPDA also called for more clarity in issues like the closing stock reimbursement and the mode of taxation. As the sales tax in the state is high at present, the switching over to VAT may result in huge gap from the present closing stock rate. The Association will also demand to put a threshold limit of Rs 25 lakh turnover for exemption from registration and payment of tax under the State Act, with suggestion that the government could reduce this stage-by-stage up to Rs 10 lakh, as per the budget decision.