Pre-VAT drug shortage ahead

HYDERABAD: The city may face a shortage of drugs for about four to five days before April 1, when the Value Added Tax (VAT) regime comes into place.
The Reason: Chemists have virtually stopped buying new stocks fearing they will incur losses by having to sell medicines at prices far less than what they purchase them for this month. For instance, a medicine costing Rs 100 now will cost less once VAT takes effect.So there is no point in stocking drugs at this stage, chemists say.
At present, the tax on drugs is 10 per cent. Come April 1, this will come down to 4 per cent. The government''s promise to refund the margin of 6 per cent on stocks purchased one year prior to the introduction of VAT for a period of six months has found few takers. Wary of the paperwork involved in claiming the money, shopkeepers are opting for the easier option: Let the existing stock run out and stock drugs again from next month.
They are neither placing orders nor keeping stocks in their shops. In fact, some druggists even said that they had marginally dropped the prices of certain drugs to finish stocks this month itself.
Stockists said that there is no point in buying drugs from companies, as chemists are not purchasing any stocks. "Chemists are buying drugs on a day-to-day basis," a stockist said. He added that that the losses they incur would run into lakhs of rupees. "If I buy stocks worth Rs 30 lakh today, 6 per cent would be Rs 1.8 lakh. We cannot take a chance," a stockist said.
Pharmaceutical companies are even offering to give the 6 per cent refund if the government fails to offer the same and several companies have made this offer to stockists of drugs. "New companies are already paying us the tax difference of 6 per cent as they do not want to lose sales," a stockist said.
The worst-hit would be the patient. Drugstores, even those in hospitals, have stopped buying medicines. However, Andhra Pradesh Health, Medical Housing and Infrastructure Development Corp managing director B Aravind Reddy said that drugs for government hospitals are purchased directly from the manufacturers and hence there would be no shortage.