Close Look at GST : Pharma sector yet to sync fully with the new regime

Close Look at GST: Pharma sector yet to sync fully with the new regime

The GST regime is expected to bring a great boost to the pharmaceutical industry by making the supply chain management efficient and reducing the cost of manufacturing pharmaceutical products. The reduction in the costs will get added to the profit margins which is a good thing for manufacturers.

Pharma sector yet to sync fully with the new regime: There was much con fusion at chemists shops across the city.While many shops failed while issuing bills to customers, very few pharma outlets like Medplus (that has both online and physical stores) outlet were able to issue bills with clear indicators on the GST added.

Rekha Chowdhury, who bought her mother s regular medicine at a chemist s shop in south delhi, had pay 12%GST to what medicines cost. “The store issued me a bill with clear indicator on how much was charged for state GST and Central GST. It s 6% each and to tally I paid 12% GST,” said Rekha.

While some shops issued bills adding the state and central GSTs, some shops did not issue bills on July 1. Not all chemists shop and even smaller clinics have not linked their systems with the GSTN. “We re still confused.I m unable to give bills to my customers and selling at the MRP rate,” said a chemist from Delhi.

Stating that at present there are some shops which are billing GST while some others are not, he added: “Shops with a turnover more than Rs 5 lakh are billing GST and those with less turnover are not. It s becoming difficult for us to explain this to customers as they too are confused about the next system.”

While the government has exempted healthcare services from GST and patients needn’t pay any tax for services rendered by hospitals, GST has been levied on several inputs used in hospitals.

Non-medical products are charged 18% GST (9% each of state and central GST). “I bought my medicines and vinegar I use with my diet. I paid 18% GST for vinegar, whereas for medicines I paid 12% GST as per the bills. Even orthopaedic footwear was considered as non-medical in the final bill for which I paid a total of 18% GST.

In the current system, specific API or life-saving drugs enjoy the benefit of non-levy of excise duty if they are covered under some specific notification of the Central Excise Law. As the Central Excise Duty will get merged in GST, these life-saving drugs will enjoy the Tax-Free status. The aforesaid goods will enjoy exemption from IGST also in case they are imported.

It will be quite interesting to know about the translation of the accumulation of credits when GST is applicable. Since pharmaceutical companies give a high stack into it, the impact will be wholesome.

In the existing model of Indirect Tax law, supplies made to a loan licensee enjoy exemption from VAT. It is important that the industrialists get the clarity about the situation post-GST implementation. Also, currently there is no service tax on the processing charge paid to the loan licensee because the process comes under “manufacturing process”.

Though the proposed bill assures that the existing benefits will be continued, it is very much important that industrialists make the situation clear.

It is assumed that the proposed would bring a good effect on the warehousing strategy also. Since most of the pharmaceutical industries today maintain warehouses (in spite of additional operating expenses) in different states to avoid the CST impact. Post GST, they needn’t worry about the same. Thus, they can maintain warehouses at strategic locations. It is also possible that pharmaceutical giants consolidate their warehouses and reduce operational expenses. This will happen across the sector regardless of the size of the company.

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