How Did GST Affect The Pharmaceutical Industry?


The year 2016-17 has been a significant year for Indian Economy, as it has witnessed an arsenal of economic reforms that are set to change the market functionality. Among various others, GST is one reform that took the entire business fraternity by storm. Especially, the pharmaceutical industry got a good jolt, as there was a lot of uncertainty surrounding the impact of GST on it.

The pharmaceutical industry in India is the third largest in the world in terms of volume and is growing at 13% every year. However, a handful of experts are worried that with the implementation of GST, the market may get stagnant and cease to grow. The pharma industry is currently valued at US$ 100 billion and it has 15-18% hold in the inventory section at any given point of time. It is estimated that with the new rate after GST, distributors and retailers are about to lose 3-4% on total inventory. So, experts fear that even a 3-4% loss in the overall value chain will accumulate a huge loss to the industry. They are hoping that the government takes care of the issue as a crucial one.

The first and foremost problem the pharmaceutical industry has faced is the hike in the price of the raw materials. With the implementation of GST, the pharma companies are bound to pay extra 7%, and thus, rising the MRP of the medicines. If we talk about the impact of GST on the end consumer, they experience a total of 4% price hike in the MRP of medicinal products. So, the government has taken steps to curb it down by controlling the drug prices and even restricted MRPs of many salts/compounds. This has led the pharmaceutical companies to incur a loss of 2-3%. So, unlike other industries, the GST will impact the Drugs Price Control Order in the pharma industry. The industry has more than 65,000 formulations and thousands of manufacturers, so the competition is intense in the market. Among all other industries, it is the only price-controlled industry and hence this peculiar problem.

Moreover, a lot of policies and schemes of pharmaceutical companies need to be changed, owing to this tax reform. Pratik Shah, Partner and Head, Indirect Tax Practice, SKP, said in an interview that the implementation of GST would impact free drug samples, expired material return policy and bonus schemes. He also added that pharma companies now have to rethink of incentives.

Despite these complications, the GST is expected to help the pharmaceutical industry in many different ways. An amalgamation of all the taxes into a uniform one will help the businesses to run smoothly, as it will reduce the surging effect of diverse taxes, applied to just one product. As experts are saying that it would help the industry in the long run, we need to wait and watch.

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