What is the impact of GST (Goods and Service Tax) on Pharmaceutical Sector?

The Indian healthcare sector is likely to touch $150 billion by the end of 2017, witnessing an increase of $70 billion since 2012. The Goods and Services Tax (GST) undoubtedly is the most important indirect tax reform measure taken by the Government since our Independence. This is going to be a game-changer for many industries, including Indian Pharmaceutical industry. Nearly 17 federal and state taxes will be replaced with one uniform tax, thereby eliminating the troubles arising out of multiple taxes. This is also going to simplify the process of tax filing and in general the taxation system.

The Indian Pharmaceutical Industry has been extremely growing in the recent years, and the Ministry of Health targets the development of new technologies by the end of this year to treat diseases, such as cancer and tuberculosis. To attract more foreign direct investment (FDI), the Government raised the FDI cap for brownfield Pharmaceutical investments to 74% in June and above 74% with the government approval and FDI cap for Greenfield Pharmaceutical investments raised to 100%.

What is GST?

GST stands for Goods and Service Tax is the biggest Tax reform in the era of Indian Indirect Taxation industry which will subsume various taxes like VAT, CST, Service tax, excise duty, additional excise duty, Luxury Tax, Entertainment Tax and many more. GST is the single taxation system in India which will help in eliminating time, cost and effort.

Now let us understand the impact of GST on Pharmaceutical industry. An enactment of the most awaited Goods and Services Tax (GST) Bill caught the attention throughout all industries in India. It will benefit most of the sectors and make the taxation easier as compared to the current taxation system.

What is the impact of GST (Goods and Service Tax) on Pharmaceutical Sector?

1. The goods and services tax (GST), India’s biggest indirect tax reform, is expected to be beneficial for Indian drug makers in the medium to long run as it aims to simplify tax structure and bring operational efficiency. 

2. As far as the health care and pharma industry is concerned, it is expected that the new GST legislation would benefit the consumers by making affordable health care a reality.

3. Goods and Service Tax is expecting to have a positive impact on the Indian Pharmaceutical Industries as it will decrease the manufacturing cost, since eight different taxes are levied in the pharmaceutical industries helps in easy going business.

4. The Biggest advantages for the Industries, Traditional Cost and Distribution Model will get replaced by supply chain efficiencies due to discontinuance of the Central Sales tax and interstate transactions between two dealers will become tax neutral.

5. This will lead to a decrease in cost which can be added to margins and even customers will get benefited from it. 

6. The rate of GST should be kept at a comparative level in the lowest slab for the pharmaceutical industries. Analysts specify the GST rate up to 12% to be neutral tax rate whereas anything above will have an inflationary effect on pricing. GST Council has finalized the tax rates of the products in Nil, 5 percent, and 12 percent category.

7. Pharmaceutical companies will experience improved operational efficiency, reduced manufacturing & transaction costs as well as improved compliance. It will also benefit warehousing strategy. 

8. The simplification of supply chain and improved operating environment will alone add 2% to the size of the pharma market.

9. Implementation of GST will result in an efficient supply chain. GST will give a 2% reduction in production or distribution cost will add to the profits by over 20%.

10. As of now, companies kept their warehouses in different States to avoid Central Sales tax of different States. Now, they can consolidate warehouses at strategic locations as they will only have to pay Integrated GST (IGST) on inter-state supplies of Goods and Services.

Concerns:

1. It is uncertain till now that the healthcare services and lifesaving drugs will continue to be exempted or not under GST Regime. Under Current Indirect Taxation, these are exempted from Excise Duty and Custom Duty and some states charges 5% taxes on Medicines.

2. As GST is applicable on phases of the supply chain, it will have negative impact on Free-drugs samples, Bonus/Discount Schemes. 

Most analysts have pointed out that despite initial issues of tax rate and compliance, in the long run GST will be a win-win situation for both pharmaceutical companies and consumers.

The impact of GST on the pharmaceutical industry is still not very transparent. But both end consumers and industry players hope this to culminate in a win-win situation. With reduced complexities and overall reduction in cost this translates to be a profitability and promising development.

Our Motto is  to keep World Healthy and we are well determined to it.

HAPPY READING..

- P.A.I.D, (Patient Awareness Initiative Department) Quest Biotech India Pvt. Ltd.

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