The Goods and Services tax (GST) is one of the India’s biggest indirect tax renovations. It is expected to be beneficial for Indian pharmaceutical industry in a long run as its objective is to simplify tax structure and bring operational efficiency. However, GST is welcomed as it creates a level playing field for pharmaceutical companies and will eventually benefit the consumers. Considering the health care and pharma industry, it is expected that the new GST regulation would benefit the consumers by making affordable health care in reality.
It is believed that information technology will play a crucial role in its effective execution and hence it is necessary to have a durable infrastructure to ensure seamless compliance and tax administration but analysts warned that there will be very less effect on the inflationary impact of GST on prices of medicines in the short run of one or two years. Also, the impact on pricing of drugs will be neutral up to 12% tax rate and beyond that, there will be inflationary effect to some extent.
The main concern is the rate of GST must be kept at a competitive level in order to have no increase in prices of drugs and medicines. GST may also have the impact on companies to clean up their supply chain in order to save taxes. It is seen that despite the initial issues of tax rate and compliance, in the long run, GST will be a win-win situation for both pharmaceutical companies and consumers.
It was stated by Sujay Shetty, the leader of the pharma and life sciences at PWC India that the simplification of supply chain and improved operating environment will alone add 2% to the size of the pharma market and even a 2% reduction in production or distribution cost of medicines will add the profits up to 20%. It is the single biggest benefit in the arm for the pharmaceutical industry and it creates a competitive advantage for those who move early. The Indian pharmaceutical industry has the domestic turnover of over $15 billion and has been witnessing high growth in the past decade but it is still facing problems like heavy competition and increasing price controls and the new GST regulation will overcome such problems.
Effect on medicines
While there may not be a huge impact of GST on medicines, but a tax rate of 5% on life-saving drugs that treat diseases like malaria, HIV-AIDS, tuberculosis, and diabetes is expected to marginally increase prices of these drugs.
Until now, these drugs were exempted from excise and customs duties. However, a few states were charging 5% on these drugs which will now be subsumed under GST. Under GST, there will be a 12% on formulations and 18% on APIs (active pharmaceutical ingredients) – the bulk drugs that go into the making of final pills and tablets.
The main drawback of the GST is that it is still not clear that whether the healthcare sector, as well as life-saving drugs and medical devices, will continue to be exempted from the taxes after the implementation of the Act or not.
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