Duty on life-saving drugs, fuel for power may fall to 4%

NEW DELHI: Life-saving drugs are set to attract a 4% rate under value added tax (VAT) instead of the proposed revenue neutral rate (RNR) of 12.5%. States which would be switching over from the sales tax regime to VAT will look at lowering the rate, at least for life saving drugs to 4% to minimise the impact on prices, official sources said.
This will be taken up for consideration by the Empowered Committee of State Finance Ministers, which is slated to meet here on April 23. The empowered committee will also consider differential rate structure for na- phtha, natural gas and fuel oil instead of the revenue neutral rate of 12.5%, depending on the end-use. These fuels, when used for power generation, is likely to attract the lower rate of 4%. The rates for transport fuels is likely to stay unchanged at 20% under VAT. The proposed move to lower the rate for life-saving drugs comes in the wake of stiff resistance by the pharmaceutical trade against the proposed hike in the rate from the present 8% to 12.5%.
Traders have reportedly expressed apprehensions on the lack of clarity in guidelines and basis of tax calculations and ambiguity on other entry taxes, including octroi.
``The Empowered Committee had considered all the pros and cons before taking the decision to fix the RNR of 12.5% for all drugs. But the demand from various quarters to exempt fully life-saving drugs from VAT has prompted states to take a re-look. As of now, the proposal is only to lower the rate to 4%’’, said an official.
There has been a demand to prune the rate for naphtha which has been fixed at 12.5%. Since states have agreed to a uniform 4% rate for all industrial and agricultural inputs, the Committee would consider a differential rate for naphtha.
There would, however, be no concession for fertilisers.
Some states have also taken a decision not to impose VAT or sales tax on additional excise duty items — sugar, tobacco and textiles. The move would help reduce the tax burden on these products. The decision taken by states is notwithstanding the Centre’s decision, announced in this year’s budget, to allow states to tax these three items at a rate exceeding 4%.