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Impact of GST Rate on Pharmaceutical Industry

Indian pharmaceutical companies manufacture 20% of all generic drugs used around the world.

Before GST, The average VAT rate for most of the pharmaceutical products is around 5% and for the formulations is 9%. The excise duty charged on pharma products was 12.5%. (Its 1.5% in excise-free manufacturing zones ).

1. Under GST, Ayurvedic medicines could get costlier as they would be taxed at the rate of 12%.
2. A lot of the times, medicines are provided without bills in India. GST would curb such practices as providing medicine without the bill would not be beneficial for anyone in the distribution chain.
3. Most of the drugs mentioned under the 5% bracket are used to cure malaria, HIV-AIDS, tuberculosis, and diabetes which were previously charged VAT around 4%.
4. bulk drugs,generics,vaccines, immune suppressants,iron injections,oral rehydration salts coms under 5%GST.
5. Active pharmaceutical ingredients, or raw materials, will be taxed at 18 per cent.

So, The impact of GST on the pharma industry  and the patients
will be neutral.


How GST effects Drug distributors?

“In many states on pharma products is on maximum retail price, which is on a single point. Due to this the distribution channel does not pay  Thus, for them paying tax, coupled with three returns a month, is a humongous task,”.

Distributors and stockists are upset at the loss they might have to incur with the increase in the effective tax rate. The effective tax rate on formulations, now 9 per cent, has been increased to 12 per cent, and trader margins have been built into the tax rate.

Under the regime, the distributors will not be able to claim refund on the tax for expired products. The government allows it only for up to six months but in pharmaceutical products, the average shelf life of a product is one year.”

The All India Chemists and Distributors Federation (AICDF) said its members would have to incur a loss on investment. The organisation said currently the trade channel paid 5 per centand now it would have to pay an additional 7 per cent but their profit margin would remain the same.

At large, distributor's profit will not be effected with GST. But they including the retail marketing chain will be more answerable by submitting returns every month.

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