Drug prices across the country are set to go up after the nationwide value-added tax (VAT) comes into force on April 1. Pharmaceutical companies expect the 12.5 per cent VAT on drugs will raise overall drug prices by around 6 per cent.

The impact will differ across states, depending on the existing tax structure in each. In Maharashtra, for example, the increase in drug prices will be over 6 per cent if the VAT rate is 12.5 per cent, as is widely expected.

At least three leading pharmaceutical companies, in addition to an association of retailers, have said the increased prices will be passed on to customers.

The various local tax components in Maharashtra, including sales tax, octroi and turnover tax, total around 7 per cent. The local sales tax is expected to be replaced by VAT after April 1. Octroi will continue.

In effect, the local tax component is expected to double to 14 per cent from 7 per cent.

Executives at a pharmaceutical major said the price increase would be "across the board", covering bulk drugs and drugs under price control.

"There will be no impact of the price hike on the bottom lines of pharmaceutical companies. The entire burden will be borne by the consumer," they said.

It remains to be seen whether the Budget for 2003-04 allows concessions for life-saving and critical-care drugs.

Kishore Shah, president of the Retail Druggists and Chemists Association, blamed the government for the increase in drug prices.

"Ultimately, innocent people will have to bear the additional cost of medicines. The government will be responsible for the increase," he said.