The Hindu Business Line : Druggists' fears over VAT baseless: AP Govt

CONTESTING the views of druggists on issues such as keeping the drug trade out of Value-Added Tax (VAT), the State Government feels that the fears are unfounded and that there is no reason why drugs should be kept out of the chain.

Reacting to the demands put forth by the druggists in the State, a senior Commercial Taxes Department official told Business Line that the demand for collecting tax at the first point raised a number of concerns.

Small-time chemists often sold goods other than medicines like cosmetics, toiletries and minor surgical items that came under VAT. "Thus, the downstream dealer cannot be exempted from the VAT net as it is desired to keep all stages of the value addition within the VAT regime," he contended.

The bottomline seems to be keeping tabs on spurious and off-licence drugs entering the market via retailers.

While ensuring that no incentive was available for retailers to sell spurious or tax evaded drugs, it would also ensure that spurious or illegal drug manufacturers came under tax net, he pointed out.

Moreover, if the demand was to be met, there might be demands from other quarters subjected to other price control orders.

With regard to the argument that there was an inherent contradiction between the Drug Price Control Order (DPCO) and VAT didn't appear valid.

"Under VAT, a TOT (Turnover Tax) dealer cannot claim input tax credit from the Government. But there is no restriction on collecting it from the customer. DPCO defines clearly that local taxes means any tax or levy paid and or payable to the Government by the manufacturer or his agent or dealer. It thus provides for recovery of MRP (maximum retail prices) plus local taxes from the consumer at the final stage," he said.

Since tax already paid earlier on in the chain can be recovered from the customer under this provision, the TOT dealer can recover the tax paid earlier by building it into his price.

They also wondered why the druggists were reopening the issue at this stage after agreeing to join VAT when the Empowered Committed (on VAT) decided that tax on medicines would be brought down to four per cent from 10 per cent.

Several States had agreed to reduce the tax rate in spite of the fact that they would cut into their collections.

"If the drugs are taxed on MRP at first point in the State of manufacture, they will be taxed once again on the value added, when sold in any other State. To this extent, the drug will be double taxed and this is not a desirable prospect," he felt.

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