Drug maker Abbott will reimburse its trade partners for losses that could arise due to changes in the tax rate with the implementation of the goods and services tax from July 1.
The move follows reports that stockists and distributors are keeping inventories to a minimum and there are fears this could result in a shortage of medicines in the market.
In a note to its trade partners on Wednesday, Abbott said in case the new tax structure and the input-claim process results in any loss to partner-stockists on the closing inventory on June 30 or the day preceding GST implementation, it will reimburse such value to the stockist.
“This will ensure that our partner-stockists do not suffer any loss resulting from tax structure changes on the inventory they hold,” Abbott said. The company also requested its distributors to maintain normal inventory and ensure adequate availability of drugs during transition phase.
GST will come into effect from July 1 and its implementation will change tax rate and consequently change the drug pricing. The exact tax rate is expected to be announced later this month.
“In case the GST rate is higher than 9 per cent it may necessitate increase in product prices and such increase should be allowed immediately. In case of drugs under price control the government should notify revised prices as per GST rate or atleast notify a formula for calculating the price revision immediately,” said Indian Drug Manufacturers Association president D R Chowdhury.
“Maximum retail price of medicines and trade margins are built around current value added tax rate of 5-6 per cent and the issue face distributors is who shall bear the differential tax cost if the GST rate is fixed at 12 per cent. Also another issue is no change is permitted in the maximum retail price of the goods except on order of government,” said Kirti Oswal, partner BSR & Associates.
Indian Pharmaceutical Alliance general secretary D G Shah said there is an anxiety amongst the trade channel regarding modalities of tax adjustment or credits. “The distributors and wholesellers may keep inventories at reduced level but I do not think there will be any shortage of medicines in the market,” he said.