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Pharma industry, trade body give mixed response to GST rate

Our Bureau, Mumbai
Monday, May 22, 2017, 13:10 Hrs  [IST]

The much-awaited GST rate approved by the GST Council to pave the way for implementation of the new tax regime has invoked mixed response from pharmaceutical industry and trade body.

The rates --5 per cent for scheduled drugs, vaccines (zero earlier) diagnostic kits, 12 per cent on non scheduled formulations, Ayurveda products (zero earlier), Homoeopathy, Unani, Siddha drugs, surgical devices, and 18 per cent on APIs, --are more or less in line with pharma industry's expectations but a major concern for the industry is how the transition will be made to these new rates.

The Indian Drug Manufacturers' Association (IDMA) national president Deepnath Roy Chowdhury said, “The GST rates are on expected lines. Except exempted life saving drugs and vaccines which will be taxed at 5 per cent rate, majority of medicines fall under 12 per cent bracket. 18 per cent GST rate for API is not a concern as manufacturers will get input tax credit for formulations made of APIs.”

The current tax rate for pharma industry comprising excise duty and VAT is 9 per cent. The proposed GST for majority of pharmaceutical formulations has been fixed at 12 per cent. Since pharma sector is a price controlled industry, IDMA appealed to the government to revise the ceiling price of scheduled products upwardly to give effect to GST rate of 12 per cent. So the industry doesn't have to bear the increasing taxes to the tune of 3 per cent. It will facilitate smooth transition to new tax regime for the pharma industry.

Department of Pharmaceuticals (DoP) should make enabling change in DPCO and advise NPPA to come out with revised ceiling prices giving effect to 12 per cent GST rate, IDMA national president said.

Pharma industry has been plagued with the issue of accumulation of credit due to higher excise duty rate on API and lower excise duty rate on manufacture of formulation. The disparity in tax rate has resulted in an inverted duty structure. While GST rates were expected to provide a reprieve to the pharma industry but the same is not adequately addressed in the fixation of GST rates. Pharma sector's concern on inverted duty structure has not been addressed in the alignment of rates, said DG Shah, secretary general of Indian Pharmaceutical Alliance.

All India Organisation of Chemists and Druggists (AIOCD) general secretary Suresh Gupta said, “5 per cent GST on APIs in scheduled category and vaccines will make life saving drugs and vaccines expensive which is against our demand. We have time and again demanded that the government should exempt drugs from GST in the interest of public at large.”

12 per cent GST will be levied on Ayurveda products. Earlier there was no tax on Ayurveda products. Non scheduled medicines will attract 12 per cent GST. Cosmetics will be charged 18-28 per cent. The rise in medicine cost will lead to rise in our inventory cost, he said.

“Stockists usually keep an inventory for 40 days, while at the retail level it's 10 days. There is no clarity on the transition day stocks and what would be the view on the stock on the day of transition. If the new rates will come into force from July, the requisite steps need to be initiated to enable pharma traders to avail credit on their closing stock a day before implementation of GST,” Gupta said.

Echoing traders' concern, Chowdhury said that in order to ensure continued availability of medicines in retail outlets during the transition period to implementation of GST and after, the government should take steps to ensure that the traders in distribution channel who will be holding stock of medicines a day before implementation of GST, be assured of getting credit on the closing stock, so they will not restrict purchasing goods till the GST introduced.


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