New Delhi: The States have been dismissive of the Centre's suggestion to cut the taxes and advance the date of implementation of VAT (Value Added Tax) regime for medicines, but have agreed on a proposed drug price monitoring system to bridge the gap between high retail rates and much lower manufacturing cost.

In a Centre-States conference held in New Delhi today (Aug 18, 2004), it was decided to bring those drugs which have an annual turnover between Rs 1.0 crore and Rs 4.0 crore under a monitoring mechanism to control their prices.

"So far we used to control and fix prices of only those drugs which have an annual turnover of over Rs four crore but now it is proposed to monitor the rates of those medicines which come under the Rs one to Rs four crore category," Chemicals Minister Ram Vilas Paswan said after the conference.

He said this would not mean that these drugs will be fully controlled or their prices will be fixed by the Government, only their rates will be monitored, ensuring that 80 per cent of the pharmaceutical sales will be covered.

Paswan said that the issue of advancing the date for reducing sales tax on drugs to four from eight per cent under the proposed VAT regime due for implementation from April 2005 could only be taken by the concerned HPC (High Powered Committee).

However, States felt there was a large scope to reduce the drug prices even without tinkering with taxes in view of the huge margins enjoyed by the traders, he said.

There was a general consensus that the manufacturing cost should also be mentioned on the medicines to arrive at the trade margins.