The pharmaceutical industry in Tamil Nadu anticipates a Rs 25 crore loss in business on account of suspension of stocks by the trade in December 2006.Two leading trade bodies demanded reimbursement of input tax credit from pharma companies prior to the switch over into Value Added Taxation (VAT) regime expected to be in place by January 2007.

The flow of stocks has come down in the beginning of December itself as the traders demanded the manufacturers to reimburse the input tax credit on the existing sales tax rate (of 10.5 per cent) for the stocks held in the transition period.

According to sources, the trade bodies have decided to suspend purchase and supply of products unless the companies agree to an amicable settlement for reimbursement. The Tamil Nadu Chemists and Druggists Association (TNCDA), the state body of All India Organisation for Chemists and Druggists (AIOCD), asked for 6.5 per cent reimbursement of tax, after deducting the four percent tax under VAT which will be remitted by the government in due course.

Meanwhile, the Tamil Nadu Pharmaceutical Distributors Association (TNPDA) has asked for a total reimbursement of 10.5 per cent taxation, as it feels that the reimbursement of four per cent tax is yet to be furnished under rules by the government. "We have sent letters to the manufacturers seeking total reimbursement of sales tax for this month, but has decided to co-operate with the companies which are ready to offer at least 6.5 per cent. For the rest of the manufacturers who are not ready to reimburse, we will take a call on company to company," a trade source told Pharmabiz.

Sources from Tamil Nadu Pharmaceutical Manufacturers Association (TN-PMA) informed that the traders were in talks with individual companies and a number of companies have agreed to issue the payment, to avoid blockade in flow of stocks. "The reimbursement on difference of tax in the transition period will result in a loss of around Rs 20 crore to Rs 25 crore for the industry during the month. Though the manufacturers all over the country who have a market in the state will suffer the loss, a major share of the loss will be for the manufacturers in Tamil Nadu," revealed S V Veeramani, Chairman, SSI Sub-Committee, and IDMA. He added that the loss would be high if the situation continues for the first month of the new regime.

The loss will affect the budget of a number of companies in the state for the current fiscal, as the industry is expecting another stock suspension by the traders by the end of the fiscal in the time of stock verification, they added. The industry has to go through confused situations by December, January and March, which would be a blow to the companies, informed sources from the industry.

The traders informed that the decision has cut down the inventory up to 20 per cent for the wholesalers till date. They said that the confusion on input tax credit issue, which could be only settled by defining proper rules under VAT, is alive still up to mid December, while the regime is expected to trigger by next month.