Within a week there is going to be a huge shortage of drugs in the state. With no clarity on post-GST drug prices, wholesalers have already stopped taking supplies from pharma companies. As for retailers, they have only the closing stock in their hands but are clueless how to dispose of it. It is the unique style of operations of the pharma sector that has led to such an impasse. In our case, unlike other traders, margins are fixed by governments. We have two types of medicines, controlled and decontrolled. For controlled drugs like morphine or pethidine, the margin is 16 percent. But for decontrolled drugs, the pricing is bit more liberal and so the margin is 20 percent. And the MRP is inclusive of all taxes.
Till June 30 the VAT on drugs was 5 percent. Under the new GST regime, it has been spiked to 12 percent. Now, we have been told that the new tax will apply to all drugs in our closing stock on June 30. This means that, overnight, retailers had been subjected to a loss of seven percent. (If the five percent loss suffered by wholesalers is also taken into account, the total loss suffered by the trade is 13 percent). There is no clarity on the compensation the companies are willing to offer. They have given us some oral assurances, but none in writing. Even the ones who had given oral assurances are ready to offer only a negligible compensation.
The most urgent task but is to re-price the drugs under the new tax system. The alarming thing is, most pharma companies have not done this. As per the Drugs and Cosmetics Act, we cannot fix any price for a drug. The price we charge should be the one declared in From 5 by the concerned pharma company. Now that there is no such official price list, our immediate concern is that we do not know the prices at which the existing stock can be sold to customers. There is so much uncertainty that we are not able to even bill our sales.
Some have downed shutters. There are some who are trying to negotiate with pharma companies. Given that there are hundreds of brands and companies, such an attempt would be futile. The tax rate might have gone up from 5 to 12 percent but manufacturers can now claim input tax credit for the raw materials that had gone into the production of a drug. But the moot point is: will manufacturers pass on the benefits.
(The writer is president of All Kerala Chemists and Druggists Association, Ernakulam)
