Is GST A Blessing for Indian Pharmaceutical Industry?

GST is the abbreviation of Goods and Services Tax

Indian Pharmaceutical Industry is one of the gold mines pertaining to revenue generation for the country’s economy. This industry has been witnessing a tremendous growth since the past few years. The Ministry of Health has been continuously thriving to attain new heights in the field of technology and is targeting to treat diseases like cancer. There is no denial to the fact that India is a leader in pharmaceutical exports and the countries who import medicines from India are more than two hundred in number. Hence, the pharmaceutical industry is one of the most relevant ones.

What is GST?

Before we go any further it is important that we get an overview of what exactly is GST. GST, the abbreviation of Goods and Services Tax, is a tax reform which will subsume several indirect taxes. These include, but are not limited to, VAT, CST, Luxury Tax, Service Tax, Excise Duty, Entertainment Tax and Excise Duty. The basic idea behind bringing such a reform is to eliminate the time, effort and cost which is invested in taking care of all of these taxations individually.

It is known to all that GST is going to bring a huge transformation in the economy. In addition to this, there are a lot of speculations which are going around in the market. GST rules and regulations are subject to change and this is giving birth to a lot of rumours. Here is an attempt to give a rest to all the hearsays and to provide you all with a clear picture of the major impacts which GST might have on the Indian Pharmaceutical Industry.

Impact of GST on Indian Pharmaceutical Industry:

If you have followed GST for a while then you will agree that there are expectations that GST rules and regulations will have at large have a favourable impact on the Indian Pharmaceutical Industry. There are multiple reasons which have given birth to such anticipations. Some of these causes are highlighted below:

• Decrease in Manufacturing Cost:
  The pharmaceutical companies had to pay eight different kinds of taxes. With the introduction of GST rules and regulations, these taxes would be substituted with one single tax. This would benefit the pharmaceutical industry immensely as their manufacturing cost will decrease manifolds. If you happen to see the benefits of it then in the longer run general public would have access to medicines and other curative drugs at lower prices.

• Cascading Effect of Multiple Taxes:
  The reality of the Indian taxation system is that it levies taxes and cesses at various points. As a result, taxpayers end up paying inaccurate amount of taxes. This thing needs to be eliminated and that is where GST comes in. The introduction of GST will ensure transparency and would warrant that taxpayers pay their actual liability and not anything above or below it.

• Efficiency in Supply Chains:
  Everyone is aware about the traditional cost and distribution model which was extremely complicated and expensive. The implementation of GST rules and regulations would ensure that various taxes like central sales tax and inter-state taxes are unified into one tax. This would be extremely helpful in decreasing costs which can be of extreme benefit to both the company as well as customers. In addition to all this, companies will be able to discover various facets of supply chain and choose the one which benefits them the most.

• Warehousing Benefits:
  The implementation of effective GST rules and regulations will benefit pharmaceutical companies immensely in reducing their warehousing costs. In the current scenario, to save themselves from multiple entry level state taxes and central sales tax pharmaceutical companies had established warehouses in different states and then they used to carry out their businesses. Now, the companies can centralise all of their warehouses at one strategic point as they will only have to pay IGST on inter-state commerce.

• Negative Impact on Free Samples and Discount Schemes:
  If we talk about the negative impacts then GST rules and regulations framework can lead to elimination of free drug samples and discount schemes. This will be a result of the implementation of GST on various stages of a supply chain.

If we have a glance at the overall picture, then it won’t be wrong to conclude that GST would have a favourable and positive impact on the Indian Pharmaceutical Industry. However, nothing specific can be interpreted till the time the actual picture pertaining to GST doesn’t come into existence.