Impact of GST-

Pharceutical Industry
Background of Industry
• India is the largest producer for generics
• Pharmaceutical Industry is currently the 3rd largest in the world
volume-wise and ranks 14th value-wise.
• 5 % of the country’s GDP is expended on the Healthcare sector.
• The country’s healthcare industry has been growing exponentially in
last few years. The healthcare sector is expected to touch $150 bn by
end of 2017, from $80 bn in the year 2012.
Benefits of GST (1/2):
• GST would have a constructive effect- streamlining the taxation structure
since 8 different types of taxes are imposed on the Pharmaceutical
Industry.
• ease the way of doing business- An amalgamation of all the taxes into one
uniform tax and minimising the cascading effects.
• improve the operational efficiency - rationalising the supply chain that
could alone add 2 percent to the country’s Pharmaceutical industry.
• enable a flow of seamless tax credit
• reduction in the overall transaction costs - withdrawal of CST (Central Sales
Tax)
• lower the manufacturing cost.
Benefits of GST (2/2):
• reduction in the overall cost of technology- Currently, the technical
machinery and equipment which are imported into the country by
the healthcare sector are very costly. Also, the duty which is levied is
not allowed as a tax credit under the present tax regulations.
However, with GST this scenario might change. Under GST, duty
charged on the import of such equipment and machinery would be
allowed as a credit.
Earlier Tax scenario:
• 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%.
• Manufacturers operating from excise-free manufacturing zones.
(Baddi and Paonta sahib in Himachal Pradesh) have to pay excise at
the rate of 1.5% in comparison to the 12.5% from every other
manufacturer of pharmaceutical products.
• VAT on the pharmaceutical products is charged on the maximum
retail price and is charged at a single point.
• the distribution channel does not pay any tax or file tax returns.
POST GST: GST Rate on Pharmaceutical Products
NIL
Human blood and its components
All types of contraceptives
5%
Animal or human blood vaccines
Diagnostic kit for all types of
hepatitis
12%
All goods not specified elsewhere:
Medicines made by mixing two or
more constituents for therapeutic
or prophylactic uses.
(including Ayurvedic medicines)
Medicines made by mixing two or
more products for therapeutic or
prophylactic uses.
(including Ayurvedic medicines)
5% 12%

Cyclosporin Wadding gauge, bandages, and similar

articles

Oral Rehydration Salts Forms or packing for retail sale regarding

surgical, dental or veterinary purposes

Desferrioxamine Injection or Deferiprone Pharmaceutical goods specified such as

sterile laminaria, dental adhesion barriers
etc.
Medicines (including veterinary medicines)
used in bio-chemichal systems and not
bearing any brand name

Drugs or medicines specified in the list 3 or

4 of notification 12/2012- central excise

Formulations manufactured from bulk drugs

listed in the list 1 of notification 12/2012 -
central excise
Impact of GST Rate

• 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%.
• Cipla, the brand which produces nicotine gums, will probably be impacted from
the rate fixed at 18%
• manufacturers operating in excise-free manufacturing zones paying more tax
under GST.
• Ayurvedic drugs or medicines were charged an average VAT of 4% and excise of
1.5% due to the excise free manufacturing zone benefit. Under GST, Ayurvedic
medicines could get costlier as they would be taxed at the rate of 12%
• Since the distribution channel was not involved in the payment of tax and filing
tax returns, they will now need to get registered and file the minimum 37 returns
annually as required under GST.
• 18% on APIs (active pharmaceutical ingredients) – the bulk drugs that go into the
making of final pills and tablets.
• Non-medical products like vinegar, orthopaedic footware are charged
18% GST (9% each of state and central GST). So, basically medical
expense of people has gone up.
• Implementation of GST will result in an efficient supply chain. Inter-
state transaction between two dealers will become tax neutral,
replacing traditional C&F distribution mode
• Most of the companies will have to realign their current distribution
models by reducing the dependency on multiple states and increasing
the focus on regional hubs
Medical tourism
• Medical tourism refers to people traveling to a country other than their own to
obtain medicaltreatment. In the past this usually referred to those who traveled
from less-developed countries to majormedical centers in highly developed
countries for treatment unavailable at home.
• India has a definite competitive advantage, Several studies have proved that the
cost of health care package including accommodation and travel to India is about
30-40 percent of the similar medical treatment and procedures in First World
countries
• The revenue from medical tourism in the country has grown from $334 million in
2004 to $2 billion this year.
• India is home to several alternative medicine practices such as Yoga, Ayurveda,
Unani, Sidha, Homeopathy and Acupuncture which are popular among the
foreigners. Such alternative medicine practices give India an important edge over
most of its competitors such as Thailand, Malaysia, Singapore, UAE and South
Korea.
Impact of GST on Medical Tourism
• With the roll out of GST, the cost of insurance, pharmaceuticals, and
international travel together with quality health care is expected to
reduce which would culminate into better prospects of medical
tourism in the country.
• It is expected that GST would have a positive effect on these
alternative medicine sector and will significantly contribute towards
the growth of medical tourism in the country.
Challenges after GST implementation:
• Mapping IT systems with reference to GST will also be a great challenge.
• need of timely preparation for GST. They fear that failing to do the same
would result in potential business risks and reputational and compliance
threat.
• the bill will impact the bonus schemes, the return of expired drugs and the
free sample of drugs. So they will have to redesign the incentive schemes
from the scratch.
• there will be a need of changing MOUs (Memorandum of Understanding)
across the country since area-wise exemptions (the current practice) will
be heavily impacted by the GST regime. Thus, consumers may feel agitated
initially because they will have to pay more money.
• the prices of some medicines that are taxed currently at the rate of 5% but
may attract a tax of 12% post GST.