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Open Access Journal of Pharmaceutical Research Research Article 10 min read

Impact of GST on Pharmaceuticals: An Overview

Kinjal V*
* Corresponding author
ISSN: 2574-7797  10.23880/oajpr-16000156  Received: April 17, 2018  Published: May 14, 2018
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Keywords
GST a giant tax structure Economic growth of country Indirect tax system GST rates GST council HSN code Eight different tax positive and negative impact DPCO and essential medicines NPPA and price control Business strategy
Abstract

GST also known as the goods and service tax is defined as the giant tax structure designed to support and enhances the economic growth of our country. More than 150 countries have implemented GST so far. GST is an indirect tax system which takes account expenditure done through sale, manufacture, and consumption of goods & services at a national level which mainly involves companies, industries and services. The GST Rates for medicines were decided by the GST council. GST is levied under 5 different rates, namely NIL, 5%, 12%, 18% and 28% based on the HSN code of the item. GST is expecting to have a positive impact on the Indian Pharmaceutical Industries as it will decrease the manufacturing price since eight different taxes are levied in the pharmaceutical industries helps in easy going business. Beside some positive impact, there are some negative impacts also. A Drug Price Control is issued to make sure that the costs of vital medicines are fixed in such a way that they are affordable for everyone. According to the revised list issued by the National Pharmaceutical Pricing Authority( NPPA), prices of the majority drugs have come down, which includes a list of antibiotics and drugs for treating cancer, HIV, diabetes. GST also affects the Business Strategy of Pharmaceutical Companies.

Introduction

GST: Goods & Services Tax Law in India is a complete, multi-stage, destination-based tax that is levied on every charge addition.

In simple words, Goods and Service Tax is an indirect tax levied on the supply of goods and services. GST Law has replaced many indirect tax laws that earlier existed in India [1].

Figure 1: Goods and service tax. The tax came into consequence from July 1st, 2017 during the implementation of 101st Amendment of the Constitution of India by the Prime Minister Narendra Modi [2]. GST an meandering tax system which takes financial credit expenditure prepared through sale, manufacture, and consumption of goods & services at a national level which mainly involves companies, industries and services area. The main idea behind it is to eliminate the tax levied of state and central government. It involves three stages: 1) State GST (SGST) levied by state 2) Central GST (CGST) levied by centre 3) Integrated GST (IGST) levied by central government on inter-state supply of goods and service [3].
Click to enlarge
Figure 1: Goods and service tax. The tax came into consequence from July 1st, 2017 during the implementation of 101st Amendment of the Constitution of India by the Prime Minister Narendra Modi [2]. GST an meandering tax system which takes financial credit expenditure prepared through sale, manufacture, and consumption of goods & services at a national level which mainly involves companies, industries and services area. The main idea behind it is to eliminate the tax levied of state and central government. It involves three stages: 1) State GST (SGST) levied by state 2) Central GST (CGST) levied by centre 3) Integrated GST (IGST) levied by central government on inter-state supply of goods and service [3].

Figure 1: Goods and service tax. The tax came into consequence from July 1st, 2017 during the implementation of 101st Amendment of the Constitution of India by the Prime Minister Narendra Modi [2]. GST an meandering tax system which takes financial credit expenditure prepared through sale, manufacture, and consumption of goods & services at a national level which mainly involves companies, industries and services area. The main idea behind it is to eliminate the tax levied of state and central government. It involves three stages: 1) State GST (SGST) levied by state 2) Central GST (CGST) levied by centre 3) Integrated GST (IGST) levied by central government on inter-state supply of goods and service [3].

Drug Price Control Order (Dpco)

Under the Essential Commodities Act, a Drug Price Control is issued to ensure that the costs of crucial medicines which are required in large amounts are set in such a way that they are reasonable for each person. The order has its roots in 1970 when the government realized the sick effects of the high profitability of medical drugs and the companies which made them [4, 5].

Calculation of Retail Price of Formulation

Before GST: The retail price of a formulation shall be calculated by the Government in accordance with the following formula namely: R.P. = (M.C. + C.C. + P.M. + P.C.) x (1 + MAPE/100) + ED.

Where, • "R.P." means retail price;

• "M.C." means material price and includes the price of drugs and other pharmaceutical aids used including overages, if any, plus process loss thereon specified as a standard from time to time by notification in the Official Gazette in this behalf;

• "C.C." means conversion cost worked out in accordance with well-known procedures of costing and shall be fixed as a standard every year by notification in the Official Gazette in this behalf;

• "P.M." means cost of the packing material used in the packing of concerned formulation, including process loss, and shall be fixed as a standard every year by, notification in the Official Gazette in this behalf;

• "P.C." means packing charges worked out in accordance with well-known procedures of costing and shall be fixed as a standard every year by notification in the Official Gazette in this behalf;

• "MAPE" (Maximum A flowable Post-manufacturing

Expenses) means all costs incurred by a manufacturer from the period of ex-factory cost to retailing and includes trade margin and margin for the manufacturer and it shall not exceed one hundred per cent for indigenously manufactured Scheduled formulations;

• "E.D." means excise duty: Provided that in the case of an imported formulation, the landed price shall form the basis for fixing its price along with such margin to cover selling and circulation expenses including interest and importer's profit which shall not go above fifty percent of the landed cost [6, 7]. After GST: GST = (MRP)/ (1 + (GST %/100)) or GST = (MRP x 100) / (100 + GST %) The retail price of a formulation after GST shall be calculated by the Government in agreement by using this formula [8].

GST Rate for Medicines

The GST Rates for medicines were decided by the GST Council in the meeting held on 3rd June, 2017. GST is levied in 5 different rates, specifically NIL, 5%, 12%, 18% and 28% based on the HSN code of the article. Medicines and pharmaceuticals are classified under 37th chapter of the HSN Code.

Figure 2: GST rate for medicines.
Click to enlarge
Figure 2: GST rate for medicines.

Nil GST Rate Medicines

The following types of medicines and pharmaceutical products are free from GST:

  • Human Blood and its components
  • All types of contraceptives

5% GST Rate

Goods under the subsequent HSN categories are taxed at 5% GST rate:

  • Animal or Human Blood Vaccines
  • Diagnostic kits for detection of all types of hepatitis
  • Desferrioxamine injection or deferiprone
  • Cyclosporin
  • Medicaments (including veterinary medicaments) used in bio-chemic systems and not bearing a brand name
  • Oral re-hydration salts
  • Drugs or medicines including their salts and esters and diagnostic test kits
  • Formulations manufactured from the bulk drugs

12% GST Rate

The Subsequent Types of Medicines and Pharmaceutical Goods are Taxed at 12% GST Rate: • Organs for organo-therapeutic uses;

• extracts of glands or other organs or of their secretions for organo-therapeutic uses;

HSN (Harmonized System of Nomenclature) is an 8- digit code for identifying the appropriate rate of GST on different goods as per GST rules. If a company has earnings up to RS.1.5 Crore in the previous financial year then they need not mention the HSN code while supplying goods on invoices. If a company has earnings more than 1.5 Cr but up to 5 Cr then they needs to mention the 2 digit HSN code while supplying goods on invoices. If turnover crosses 5 Cr then they shall mention the 4 digit HSN code on invoices (Table 1-6) [11, 12].

  • heparin and its salts; other human or animal substances prepared for therapeutic or prophylactic uses, not elsewhere specified or included
  • Animal blood prepared for curative, prophylactic or diagnostic uses;

• antisera and other blood fractions and customized immunological products, whether or not obtained by means of biotechnological processes;

• Toxins, cultures of microorganisms (not including yeasts) and similar products.

• Medicaments consisting of two or more constituents, who have been mixed together for therapeutic or prophylactic uses, not put up in measured doses or in forms or packings for retail sale, including Ayurvaedic, Unani, Siddha, homoeopathic or Bio-chemic systems medicaments.

• Medicaments consisting of mixed or unmixed products for curative or prophylactic uses, put up in measured doses (as well as those in the form of transdermal administration systems) or in forms or packings for retail sale, including Ayurvaedic, Unani, homoeopathic siddha or Biochemic systems medicaments, put up for retail sale.

• Wadding, gauze, bandages and similar goods (for example, dressings, adhesive plasters, poultices), impregnated or layered with pharmaceutical substances or put up in forms or packings for retail sale for medical, surgical, dental or veterinary purposes.

  • Pharmaceutical goods such as Sterile surgical catgut, similar sterile suture materials (including sterile absorbable surgical or dental yarns) and sterile tissue adhesives for surgical cut closure; sterile laminaria and sterile laminaria tents; sterile absorbable surgical or dental haemostatics; sterile surgical or denatal adhesion barriers, whether or not absorbable, etc.,
  • Waste pharmaceuticals.

18% GST Rate

Nicotine polacrilex gum is the only medicine or pharmaceutical creation taxed at 18% GST rate. No pharmaceutical or medicines have been taxed at 28% GST. Hence, the maximum applicable GST rate for medicines is 18% [9, 10].

HSN Code and GST Rate for Pharmaceuticals and Medicines

HSN codes Description % Implement

Import and

from export Glands And Other Organs For Organo-Therapeutic Uses; Extracts

Of Glands Or Other Organs Or Of Their Secretions For Organo- Therapeutic Uses; Heparin And Its Salts; Other Human Or Animal Substances Prepared For Therapeutic Or Prophylactic Uses, Not elsewhere Specified Or Included [13, 14, 15].

300120 Extracts of glands or other organ Or of their secretions 12%

Liquid extracts of liver 12% 30012010 Liver extracts, dry 12% 30012020 Snake venom 12% 30012030 Other 12% 30012090 300190 Other 12% Of human origin 12% 30019010 Heparin and its salt 12% 30019091 Other 12% 30019099

Animal Blood Products, Antisera And Other Blood Fractions,
3002Modified Immunological Products, Toxins And Culture OfNIL28/06/2017
Microorganism [13-15].
300210Antisera and other blood fractions and immunological products,
whether or not modified or obtained by means of biotechnological
processes:		NIL
Malaria diagnostic test kitsNIL30021100
300212Antisera and other blood fractionNIL
For diphtheriaNIL30021210
For tetanusNIL30021220
For rabiesNIL30021230
For snake venomNIL30021240
OtherNIL30021290
300213Immunological products, unmixed, not put up in measured does or in
form or packaging for retail sale		NIL
Immunological products, unmixed, not put up in measured does or in
form or packaging for retail sale		NIL30021310
300214Immunological products ,mixed, not put up measured doses or in form
or packaging for retail sale		NIL
Immunological products ,mixed, not put up measured doses or in form
or packaging for retail sale		NIL30021410
Immunological products , put up measured doses or in form or
packaging for retail sale		NIL30021500
OtherNIL30021900
300220Vaccines for human medicine5%
Single vaccines:
For cholera and typhoid5%30022011
For hepatitis5%30022012
For tetanus5%30022013
For polio5%30022014
For tuberculosis5%30022015
For rabies5%30022016

Table 1: Pharmaceutical goods under HSN 3006.

For Japanese encephalitis5%30022017
For whooping cough(pertusis)5%30022018
Other5%30022019
Mixed vaccines:
For diphtheria, pertusis and tetanus(DPT)5%30022021
For diphtheria and tetanus(DT)5%30022022
For measles, mumps and Rubella(MMR)5%30022023
For typhoid – parathyroid(TAB) or typhoid-parathyroid-cholera(TABC)5%30022024
Other5%30022029
Vaccines for veterinary medicine5%30023000
300290OtherNIL
Human bloodNIL30029010
Animal blood prepared for therapeutic, prophylactic, or diagnostic useNIL30029020
ProbioticsNIL30029030
ToxinsNIL30029040
OtherNIL30029090

Table 2: Pharmaceutical goods under HSN 3006.

Medicaments consisting of two or more constituents which
have been mixed together for therapeutic or prophylactic
3003uses, not put up in measured doses or in forms or packings12%28/06/2017
for retail sale, including Ayurvaedic, Unani, Siddha,
homoeopathic or Bio-chemic systems medicaments [13-15].
Containing penicillins or derivatives thereof, with a
penicillanic acid structure, or streptomycins or their derivatives		12%30031000
Other, containing antibiotics12%30032000
Containing Insulin12%30033100
Other12%30033900
Containing ephedrine or its salts12%30034100
Containing pseudoephedrine or its salts12%30034200
Containing norephedrine or its salts12%30034300
Other12%30034900
Other, containing anti-malarial active principles12%30036000
300390Other12%
Ayurvedic, Unani, siddha, Homoeopathic or bio- chemic systems
medicaments:
Of ayurvedic system12%30039011
Of unani system12%30039012
Of siddha system12%30039013
Of homeopathic system12%30039014
Of bio-chemic system12%30039015
Menthol crystals12%30039021
Milk of magnesia12%30039022
Bovine Albumin and drugs of animal origin, Merbromine
National Formulary XII (Mercurochrome), Calcium Sennoside,
Anaesthetic agents used in human or veterinary medicine or
surgery, Aluminium hydroxide gel:
Bovine albumin and drugs of animal origin12%30039031
Merbromine national formulary XII12%30039032
Calcium sennoside12%30039033

Table 3: Pharmaceutical goods under HSN 3006.

Anaesthetics agents used in human or veterinary medicine or
surgery		12%30039034
Aluminium hydroxide gel12%30039035
Ketamine12%30039036
Other12%30039090

Table 4: Pharmaceutical goods under HSN 3006.

Medicament consisting of mixed or unmixed products for therapeutic
or prophylactic uses, put up in measured doses
300412%28/06/2017
(including those in the form of transdermal administration systems)
or in forms or packings for retail sale [13-15]
300410Containing penicillin or derivatives thereof, with a penicillanic acid
structure, or streptomycins or their derivatives		12%
Penicillin12%30041010
Ampicillin12%30041020
Amoxicillin12%30041030
Becampicillin12%30041040
Cloxacillin12%30041050
Ampicillin and cloxacillin combination12%30041060
Streptomycin12%30041070
Other12%30041090
300420Other, containing antibiotics12%
Cephalosporins and their derivatives:12%
Cefazolin12%30042011
Cephalexin12%30042012
Ciprofloxacin12%30042013
Cefoxitin12%30042014
Other12%30042019
Sulphonamides and cotrimoxazole12%30042020
Fluoroquinolones:12%
Norfloxacin12%30042031
Nalidixic acid12%30042032
Ciprofloxacin12%30042033
Ofloxacin12%30042034
Other12%30042039
Tetracycline:
Chlortetracycline12%30042041
Oxytetracycline12%30042042
Other12%30042049
Chloramphenicol12%30042050
Macrolides:
Erythromycin12%30042061
Roxithromycin12%30042062
Clarithromycin12%30042063
Azithromycin12%30042064
Other12%30042069
Cefadroxil12%30042070
Other:
Isoniazide12%30042091
Rifampicin12%30042092
Pyrazinamide12%30042093

Table 5: Pharmaceutical goods under HSN 3006.

Ethambutol12%30042094
Clindamycin12%30042095
Vancomycin12%30042096
Polymixin B and colistin12%30042097
Other12%30042099
300431Containing insulin12%
Insulin injection12%30043110
Other12%30043190
Containing corticosteroid hormones, their derivatives or structural analogues12%30043200
300439Other12%
Pituitary hormones; Prednisolone; Dexamethasone; Danazol; Other
progestogen and oestogen group hormones:
Pituitary hormones12%30043911
Prednisolone12%30043912
Dexamethasone12%30043913
Danazole12%30043914
Other progestogen and oestogen group hormones12%30043919
Gonadotrophins and luteinising hormone:
Gonadotrophins12 %30043921
Luteinizing hormone12%30043922
Other12%30043990
300440Other, containing alkaloids or derivatives thereof:12%
Containing ephedrine or its salts12%30044100
Containing pseudoephedrine (INN) or its salts12%30044200
Containing nor ephedrine or its salts12%30044300
300449Other:12%
Atropine and salts thereof12%30044910
Caffeine and salts thereof12%30044920
Codeine and derivatives, with or without ephedrine hydrochloride12%30044930
Ergot preparations, ergotamine and salts thereof12%30044940
Papavarine hydrochloride12%30044950
Bromohexin and salbutamol12%30044960
Theophylline and salts thereof12%30044970
Other12%30044990
300450Other, containing vitamins or other products of heading 2936:12%
Heamatinics and Erythropoyetin preperations12%30045010
Preperations of minerals and their supplements12%30045020
Preparations of vitamins:12%
Of Vitamin A12%30045031
Of Vitamin B1 and B2 and their salts thereof12%30045032
Of Vitamin B912%30045033
Of Vitamin B1212%30045034
Of Vitamin C12%30045035
Of Vitamin D12%30045036
Of Vitamin E12%30045037
Other12%30045039
Other12%30045090
Other, containing antimalarial active principles12%30046000
300490Other:12%
Ayurvedic, Unani, Homoeopathic, Siddha or Bio- chemic systems
medicaments, put up for retail sale:
Of Ayurvedic System12%30049011
Of Unani systems12%30049012
Of Siddha system12%30049013
Of Homoeopathic System12%30049014
Of Bio-chemic system12%30049015
Anthelmintics drugs; Antiamoebic and other Antiprotozal drugs;
Antifungal drugs:
Anthelmintics and preparations thereof12%30049021
Metronidazole12%30049022
Tinidazole12%30049023
Secnidazole12%30049024
Diloxamide Furoate12%30049025
Sodium Stibogluconate12%30049025
Pentamidine12%30049027
Other12%30049029
Antihistaminics drugs; Antacids preparations; Antiulcer drugs;
Antiemitics and other Gastrointestinal drugs:
Promethazine, Chlorphenimiramine, Astemizole and Ceteirizine12%30049031
Sodium bicarbonate, Magnesium hydroxide (Milk of Magnesia), Magnesium
carbonate, Magnesium trisilicate, Aluminium hydroxide gel, Magaldarate and
combinations thereof		12%30049032
Cimetidine, Rantidine, Nizatidine and Roxatidine12%30049033
Omeprazole and Lansoprazole12%30049034
Dicyclomine, Metoclopramide and Dexamethasone and Ondansetron12%30049035
Chenodiol and Ursodiol12%30049036
Other12%30049039
Anticancer drugs:
Cyclophosphamide12%30049041
Methotrexate, 5-fluorouracil(5-FU) and Ftorafur12%30049042
Bincristine and Vinblastine12%30049043
Paclitaxel and Docetaxel12%30049044
Etoposide12%30049045
Actinomycin D-Dactinomycin and Doxorubicin12%30049046
L-Asparaginase, Cisplatin and Carboplatin12%30049047
Tamoxifen12%30049048
Other12%30049049
Antitubercular drugs; Antileprotic drugs; Antimalarial drugs:
Isoniazid12%30049051
Rifampicin12%30049052
Pyrazimamide and Ethambutol12%30049053
Streptomycin12%30049054
Dapsone(DDS), Acedapsone (DADDS), Solopsone and Clofazimine12%30049055
Chloroquine, Amodiaquine, Mefloquine, Quinine, Chloroguamamide,
Pyrimethamine		12%30049056
Other Antitubercular drugs12%30049057
Other Antileprotic drugs12%30049058
Other Antimalarial drugs12%30049059
Nonsteroidal antiinflammatory, analgesics and antipyratic drugs:
Analgin with or without other compounds such as paracetamol12%30049061
Acetyl salicylic acid (Aspirin) and formulations thereof12%30049062
Ibuprofen with or without paracetamol or other compounds12%30049063
Oxyphen butazone, Phenyl butazone and formulations thereof12%30049064
Indomethacin12%30049065
Mephenamic acid, dactofenac sodium, Piroxicam, Tenoxicam and Meloxicam12%30049066
Ketorolac, Nimesulide, Mabumetone and Nefopam12%30049067
Other12%30049069
Antihepertensive drugs:
Captopril, Enalapril, Lisimopril, Perimdopril and Ramipril12%30049071
Verapamil, Nifedipine, Amlodipine and Lacidipine12%30049072
Losartam12%30049073
Propranolol, Metoprolol, Atenolol and Labetalol12%30049074
Prazosin, Terazosin, Phentolamine and Phenoxybenzamime12%30049075
Clonidine, Methyldopa12%30049076
Hydralazine, Minoxidil and Diazoxide12%30049077
Other12%30049079
Antiepiliptic drugs; Sulfa drugs not elsewhere specified or included,
Preparations of enzymes; veterinary medicinal preparations, not for
human use, not elsewhere specified or included; Oral rehydration salts;
Antibacterial formulations not elsewhere specified or included, Sedatives
and Tranquilizers:
Phenobarbitone, Memphobarbitone, Primidone, Phenytoin, Carbamazepine,
Ethosuximide, Valporic acid (Sodium valporate), Diazepam, Lamotrigine,
Gabapentin, Bigabatrin, Phenacemide, Trimethadione and Acetazolamide		12%30049081
Other Antiepileptic drugs12%30049082
Sulpha drugs not elsewhere specified or included12%30049083
Preparations of Enzymes12%30049084
Veterinary medicinal preparations, not for human use, not elsewhere specified
or included		12%30049085
Oral rehydration salts12%30049086
Antibacterial formulations, not elsewhere specified or included12%30049087
Sedatives12%30049088
Tranquilizers12%30049089
Other:
Salbutamol, Terbutaline, Ephedrine, Salmeterol and Methyl xanthimes12%30049091
Plasma expanders12%30049092
Chloropheniramine Maleate, with or without other compounds (excluding
steriods and alkaloids)		12%30049093
Theophylline, Aminophylline and other Broncho dilators12%30049094
Carcino-chemotherapeutic drugs not elsewhere specified or included12%30049095
Ketamine12%30049096
Other12%30049099

Table 6: Pharmaceutical goods under HSN 3006.

wadding, gauze, bandages and similar articles (for example, dressings,
adhesive plasters, poultices), coated with pharmaceutical substances or
300512%28/06/2017
put up in forms or packings for retail sale for medical, surgical,
dental or veterinary purposes [13-15]
300510adhesive dressings and other articles having an adhesive layer:12%
adhesive guaze12%30051010
adhesive tape12%30051020
Other12%30051090
300590other:12%

Table 7: Pharmaceutical goods under HSN 3006.

cotton wool, medicated 12% 30059010 poultice of kaolin 12% 30059020 Lint, medicated 12% 30059030 Bandages 12% 30059040 Burn therapy dressing soaked in protective gel 12% 30059050 Micro pores surgical tapes 12% 30059060 Corn removers and callous removers 12% 30059070 Other 12% 30059090

3006PHARMACEUTICAL GOODS SPECIFIED IN NOTE 4 TO THIS CHAPTER12%28/06/2017
300610sterile surgical catgut, similar sterile suture materials (including sterile
absorbable surgical or dental yarns) and sterile tissue adhesives for
surgical wound closure; sterile laminaria and sterile laminaria tents;
sterile absorbable surgical or dental [13-15]		12%
sterile surgical catgut, similar sterile suture materials (including sterile
absorbable surgical or dental yarns) and sterile tissue adhesives
for surgical wound closure		12%30061010
sterile laminaria and sterile laminaria tents; sterile absorbable surgical or
dental haemostatics; sterile surgical or dental adhesion barriers,
whether or not absorbable		12%30061020
blood grouping reagents12%30062000
opacifying preprations for x-ray examinations; diagnostic reagents
designed to be administered to the patient		12%30063000
dental cements and other dental fillings; bone reconstruction cements12%30064000
first-aid boxes and kits12%30065000
300660chemical contraceptive preparations based on hormones,
or on other products of heading 2937 or on spermicides:		NIL
based on hormonesNIL30066010
based on other products of heading 2937NIL30066020
based on spermicidesNIL30066030
gel preparations designed to be used in human or veterinary medicine
as a lubricant for parts of the body for surgical operations or physical
examinations or as a coupling agent between the body and medical
instruments		NIL30067000
other:
appliances identifiable for ostomy useNIL30069100
waste pharmaceuticals30069200

Table 8: Pharmaceutical goods under HSN 3006.

GST on India’s Pharmaceutical Industry

The 122nd improvement Bill was passed as the Constitution’s One Hundred and Twenty-Second Amendment Act, 2017. It will be affecting several industries, businesses, and companies at the same time. The pharmaceutical industry occupies a unique case owing to the medicinal and pharmaceutical requirements it provides. If taken the share of GDP, it contributes to 5% of it. The Government of India with GST Council and its Chairman, Union Finance Minister of India – Arun Jaitley have introduced it so as to enhance FDI (Foreign Direct Investment). The alteration will bring about some changes in each individual industry [3].

Figure 3: Impact of GST on pharmaceutical industries. Goods and Service Tax is expecting to have a encouraging impact on the Indian Pharmaceutical Industries as it will decrease the manufacturing cost since eight different taxes are levied in the pharmaceutical industries helps in easy going business. It will eradicate the cascading effect of multiple taxes applied on One Product. The Biggest reward for the Industries: conventional Cost and delivery Model will get replaced by supply chain efficiencies due to discontinuance of the Central Sales tax and interstate transactions between two dealers will become tax neutral. This will lead to a decrease in cost which can be added to margins and even consumers will get profit from it. This will provide absolute freedom to the companies to discover strategic supply chain and distribution channel. Additionally, it is uncertain till now that the healthcare services and lifesaving drugs will continue to be exempted or not under GST Regime. Under Current Indirect Taxation, these are exempted from Excise Duty and Custom Duty and a few states charge 5% taxes on Medicines. The rate of GST should be kept at a relative level in the lowest slab for the pharmaceutical industries. Analysts specify the GST rate up to 12% to be neutral tax rate whereas no matter which above will have an inflationary effect on pricing. GST Council has finalized the tax rates of the goods in Nil, 5 percent, and 12 percent kind. Beside some constructive impact, there are some unconstructive impacts also. As GST is relevant on phases of the supply chain, it will have a unhelpful impact on Free-drugs samples, Bonus/Discount Schemes, Inter-state stock transfer, etc. Pharmaceutical companies will experience better operational efficiency, condensed manufacturing & transaction costs as well as better fulfillment. It will also promote warehousing strategy. As of now, companies kept their warehouses in different States to avoid Central Sales tax of different States. Now, they can combine warehouses at strategic locations as they will only have to pay Integrated GST (IGST) on inter-state supplies of Goods and Services [2].
Click to enlarge
Figure 3: Impact of GST on pharmaceutical industries. Goods and Service Tax is expecting to have a encouraging impact on the Indian Pharmaceutical Industries as it will decrease the manufacturing cost since eight different taxes are levied in the pharmaceutical industries helps in easy going business. It will eradicate the cascading effect of multiple taxes applied on One Product. The Biggest reward for the Industries: conventional Cost and delivery Model will get replaced by supply chain efficiencies due to discontinuance of the Central Sales tax and interstate transactions between two dealers will become tax neutral. This will lead to a decrease in cost which can be added to margins and even consumers will get profit from it. This will provide absolute freedom to the companies to discover strategic supply chain and distribution channel. Additionally, it is uncertain till now that the healthcare services and lifesaving drugs will continue to be exempted or not under GST Regime. Under Current Indirect Taxation, these are exempted from Excise Duty and Custom Duty and a few states charge 5% taxes on Medicines. The rate of GST should be kept at a relative level in the lowest slab for the pharmaceutical industries. Analysts specify the GST rate up to 12% to be neutral tax rate whereas no matter which above will have an inflationary effect on pricing. GST Council has finalized the tax rates of the goods in Nil, 5 percent, and 12 percent kind. Beside some constructive impact, there are some unconstructive impacts also. As GST is relevant on phases of the supply chain, it will have a unhelpful impact on Free-drugs samples, Bonus/Discount Schemes, Inter-state stock transfer, etc. Pharmaceutical companies will experience better operational efficiency, condensed manufacturing & transaction costs as well as better fulfillment. It will also promote warehousing strategy. As of now, companies kept their warehouses in different States to avoid Central Sales tax of different States. Now, they can combine warehouses at strategic locations as they will only have to pay Integrated GST (IGST) on inter-state supplies of Goods and Services [2].

Figure 3: Impact of GST on pharmaceutical industries. Goods and Service Tax is expecting to have a encouraging impact on the Indian Pharmaceutical Industries as it will decrease the manufacturing cost since eight different taxes are levied in the pharmaceutical industries helps in easy going business. It will eradicate the cascading effect of multiple taxes applied on One Product. The Biggest reward for the Industries: conventional Cost and delivery Model will get replaced by supply chain efficiencies due to discontinuance of the Central Sales tax and interstate transactions between two dealers will become tax neutral. This will lead to a decrease in cost which can be added to margins and even consumers will get profit from it. This will provide absolute freedom to the companies to discover strategic supply chain and distribution channel. Additionally, it is uncertain till now that the healthcare services and lifesaving drugs will continue to be exempted or not under GST Regime. Under Current Indirect Taxation, these are exempted from Excise Duty and Custom Duty and a few states charge 5% taxes on Medicines. The rate of GST should be kept at a relative level in the lowest slab for the pharmaceutical industries. Analysts specify the GST rate up to 12% to be neutral tax rate whereas no matter which above will have an inflationary effect on pricing. GST Council has finalized the tax rates of the goods in Nil, 5 percent, and 12 percent kind. Beside some constructive impact, there are some unconstructive impacts also. As GST is relevant on phases of the supply chain, it will have a unhelpful impact on Free-drugs samples, Bonus/Discount Schemes, Inter-state stock transfer, etc. Pharmaceutical companies will experience better operational efficiency, condensed manufacturing & transaction costs as well as better fulfillment. It will also promote warehousing strategy. As of now, companies kept their warehouses in different States to avoid Central Sales tax of different States. Now, they can combine warehouses at strategic locations as they will only have to pay Integrated GST (IGST) on inter-state supplies of Goods and Services [2].

Positive Effects of GST on Economy of Pharmaceutical Industries

GST eliminate the cascading effect of the tax which involved multiple taxes applied on only one Product. The costing and taxation system will be easy with only mountainous of three accounts. It will create a general market for every person with an equal chance towards development across various states. Due to discontinue of the Central Sales Tax and Interstate transactions between two dealers the conventional Cost and Distribution Model will get replaced by supply chain efficiencies and tax will become impartial.

Figure 4: Positive effect of GST.
Click to enlarge
Figure 4: Positive effect of GST.
  1. Under GST, the life-saving vital drugs like the Oral re- hydration salts, Diagnostic Kits for detection of all types of hepatitis and various other life-saving injections ad drugs fall under the slab of 5%.
  2. Bonus /Discount Schemes, Free-drugs samples, Interstate stock transfer, etc are said to be costlier for firms for the reason that of its applicability of phases of the supply chain.
  3. Pharmaceutical manufacturing generic/branded formulations/ dietary supplement companies who were suffer because of heavy excise duty will see a great profit due to condensed taxation and low industrialized cost for all firms.
  4. The highest GST on bulk drugs is 18% and on formulations, it will be around 5% & 12% at maximum.

This means the formulators will be paying more tax through GST. Thus, they will be charged a smaller amount on formulations. It means the input credit will be accumulated which will be refunded itself. 5. Pharmaceutical companies and businessmen will find the lack of restrictions to explore strategic supply chain and distribution channel. 6. CENVAT credit is a credit balance in a bank account which can be refunded/ adjusted towards the central excise on the purchase or duty paid on a final product. The matter seems to finish for pharmaceutical industry due to GST charging single rate for goods and services [3].

Negative Effects of GST on Pharmaceutical Industries

With helpful effect, there are a few unhelpful effects on
the pharmaceutical industry:
1) Many Ayurvedic products are comes in the category of
12% to 15% as many of the ayurvedic products comes
under cosmetic range.
Figure 5
Click to enlarge
Figure 5

frequently being a total tax (including VAT) of 11.5 to 12.5 percent to 18% [3].

References

  1. What is GST in India? Goods & Services Tax Law Explained.
  2. Saurabh Jain (2017) GST Impact on Indian Pharmaceutical Industry.
  3. What will be The Effect of GST on Pharma Industry.
  4. (2017) Drug Price Control Orders (DPCO).
  5. Jain NK (2013) pharmaceutical jurisprudence, vallabh prakashan, 4th revised (Edn.) 2015, drug price control order, pp: 107-122.
  6. (1995) Drugs (Price Control) Order.
  7. Agarwal SP, Khanna Rajesh (2015) Pharmaceutical Jurisprudence and ethics, Birla publication pvt ltd 5th reprint (Edn.), pp: 193.
  8. PTR and PTS Calculator.
  9. Rawat R (2017) Impact of GST (Goods and Services Tax) on Medicine Prices.
  10. GST Rate for Medicines.
  11. Goods and Services Tax (India).
  12. GST Rate & HSN Code for Drugs & Pharmaceuticals - Chapter 30.
  13. HSN Code and GST Rate for Pharmaceuticals and Medicines.
  14. GST rate AND HSN code Chapter 30: Pharmaceutical Products. RAT
  15. HS Codes of Chapter 30: Pharmaceutical Products.
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@article{kinjal2018,
  title   = {Impact of GST on Pharmaceuticals: An Overview},
  author  = {Kinjal V},
  journal = {Open Access Journal of Pharmaceutical Research},
  year    = {2018},
  volume  = {2},
  number  = {2},
  doi     = {10.23880/oajpr-16000156}
}
Kinjal V (2018). Impact of GST on Pharmaceuticals: An Overview. Open Access Journal of Pharmaceutical Research, 2(2). https://doi.org/10.23880/oajpr-16000156
TY  - JOUR
TI  - Impact of GST on Pharmaceuticals: An Overview
AU  - Kinjal V
JO  - Open Access Journal of Pharmaceutical Research
PY  - 2018
VL  - 2
IS  - 2
DO  - 10.23880/oajpr-16000156
ER  -