GST LLP - GST impact on Indian Pharmaceutical Sector

GST Legacy

GST impact on Indian Pharmaceutical Sector

The Indian pharmaceutical industry is a self-sufficient sector. It is also one of the top foreign earner industries and proudly the third largest pharmaceutical sector in the world. It is disheartening that the pharmaceutical industry has not got any mention in last few budgets. Hence the industry is expecting an increased profit margin with GST’s launch in India. This article will explain GST’s impact on the industry and its challenges.

The GST roll out has a positive impact on the pharmaceutical industry as this new tax regime is streamlining the complex indirect tax structure. There were 8 different types of indirect taxes in this industry and post GST these have become a uniform. Furthermore, GST is enabling a seamless flow of tax credit along with a better compliance system.

Experts believe that GST will rationalize supply chain as well. Earlier, the import of pharmaceutical machinery and equipment was a costly affair for the companies. But with GST, such companies are enjoying the benefit of input tax credit on such duties.

Let’s discuss the medicine-wise GST rate in India to get a lucid view of the scenario:

0% GST is applicable on:

  • Human blood and its components.

  • All types of contraceptives.

5% GST is applicable of following medicines that fall under Harmonized System Nomenclature (HSN):

  • Medicaments (including veterinary medicaments) used in bio-chemic systems and not bearing a brand name.

  • Oral re-hydration salts.

  • Drugs or medicines including their salts and esters and diagnostic test kits.

  • Formulations manufactured from bulk drugs.

  • Animal or human blood vaccines.

  • Diagnostic kits for detection of all types of hepatitis.

  • Desferrioxamine injection or deferiprone.

  • Cyclosporin.

12% GST is applied on the following medicines:

  • Organs for organo-therapeutic uses, dried, whether or not powdered.

  • Glands extracts or other organs or of their emissions for organo-therapeutic uses.

  • Heparin and its salts.

  • Human or animal substances produced for therapeutic or prophylactic uses.

  • Animal blood developed for therapeutic, prophylactic or diagnostic uses.

  • Antisera and other blood fractions and improved immunological products, whether or not attained by means of biotechnological processes; toxins, cultures of microorganisms (excluding yeasts) and same products.

  • Wadding, gauze, bandages, dressings, adhesive plasters, poultices, etc.

  • Sterile surgical catgut, sterile suture materials (including sterile absorbable surgical or dental yarns) and sterile tissue adhesives for surgical wound closure; sterile laminaria, etc.

  • Pharmaceuticals waste.

18% GST is applied on Nicotine polacrilex gums.

The pharmaceutical sector is facing some major challenges in the transition to this new tax regime. Due to various such challenges medicine sales have not picked up yet. The chemist shops are facing the following challenges:

Software issues

Migration to a GST ready software is not an easy job for small and medium chemist shops. It will definitely take sometime to get comfortable with the new tax system.

Impact at all stages of supply chain

Immediately after GST implementation, the pre-GST inventory levels are recovering slowly. It is difficult to maintain such inventory level as GST is affecting every stage of supply chain.

Goods Transition

Goods transition is a round-the-clock activity and the goods that were already in transit on 1st of July 2017, went through a lot of confusion on the applicable rates and processes. Infact business owners still lack clarity regarding GST registration as the government has not taken many steps in spreading pre-GST awareness.

Earlier the medicines with 5% tax are now available at 12% GST rate. Things like free samples and discount offer, bonus schemes, inter-state movement of expired medicines are GST levied now. Moreover, the pharma companies cannot enjoy area-based immunities under this new tax structure and as a result, the end-consumers will suffer from the increased cost.

India is new to GST and is yet to figure out the exact impact of this new indirect tax structure on any industry although the government says ‘it will be good in a long run’.

Specifically about the pharmaceutical sector, experts say that GST for sure will remove the complexities of the business and help grow the business. While the overall profit or loss can be commented on, only in the next few years but for sure the medical tourism will be profitable.