What is GST? GST Rates for Pharmaceutical Products and What will be the impact of GST (Goods and Service Tax) on Pharmaceutical Sector?

What is GST?

GST stands for Goods and Service Tax which implements in India from July 1, 2017. It is form of indirect taxes levied by Indian Government. It will replace all other indirect taxes like cst/vat/tin/excise duty etc.

Read Related: How to apply for GST registration?
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State Code for Indian Territory

GST Rates for Pharmaceutical Products and Ayurvedic Products: 

1. NIL for Human Blood and its components 
2. NiL for All types of contraceptives 
3. 5% for Animal or Human Blood Vaccines 
4. 5% for Diagnostic kits for detection of all types of hepatitis 
5. 5% for Desferrioxamine injection or deferiprone 
6. 5% for Cyclosporin 
7. 5% for Medicaments (including veterinary medicaments) used in bio-chemic systems and not bearing a brand name 
8. 5% for Oral re-hydration salts 
9. 5% for Drugs or medicines including their salts and esters and diagnostic test kits, specified in List 3 or List 4 (See in the End of Article) appended to the notification No.12/2012- Customs, dated the 17th March, 2012, dated the 17th March, 2012 
10. 5% for Formulations manufactured from the bulk drugs specified in List 1 (See in the End of Article) of notification No.12/2012-Central Excise, dated the 17th March, 2012, dated the 17th March, 2012. 
11. 18% for Nicotine polacrilex gum. 
12. 12% All goods not specified elsewhere including  
    a) Medicaments (excluding goods of heading 30.02, 30.05 or 30.06) consisting of two or more constituents which have been mixed together for therapeutic or prophylactic uses, not put up in measured doses or in forms or packings for retail sale, including Ayurvedic, Unani, Siddha, homoeopathic or Bio-chemic systems medicaments.
    b) Medicaments (excluding goods of heading 30.02, 30.05 or 30.06) consisting of mixed or unmixed products for therapeutic or prophylactic uses, put up in measured doses (including those in the form of transdermal administration systems) or in forms or packings for retail sale, including Ayurvedic, Unani, homoeopathic siddha or Biochemic systems medicaments, put up for retail sale.
    c) Wadding, gauze, bandages and similar articles (for example, dressings, adhesive plasters, poultices), impregnated or coated with pharmaceutical substances or put up.
    d) forms or packings for retail sale for medical, surgical, dental or veterinary purposes.
    e) Pharmaceutical goods specified in Note 4 to this Chapter such as Sterile 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 haemostatics; sterile surgical or denatal adhesion barriers, whether or not absorbable, etc., Waste pharmaceuticals [other than contraceptives]
13. Few Nutraceticals, Food and Dietary Supplements come under 18% tax slab and Few come under 28% tax slab. Soya Protein preparation, Vitamins and Pro vitamin preparations, Enzymatic preparations, whey proteins etc come under 18% tax slab

Impact of GST (Goods and Service Tax) on Pharmaceutical Sector?

As tax rates on GST has been announced. Most of pharmaceutical products fall under 12 percent category. With announcement of GST rates, many uncertainties about GST implementation in India has been clear. Only one thing that is unclear is that whether it will be applicable at mrp or trade value.

Everyone has its own and different view regarding implementation of GST. All sectors have been divided in tax slab of nil, 5, 12, 18 and 28 percent. After tax slab clarification picture under Gst is being clear. Even after lot of consulting and discussion, many doubts are unclear. Everything will be clear only after implementation of GST. Here we will try to highlight few aspects related to pharmaceutical industry.

Few major concerning aspects are:

Excise Free Zones:

Pharmaceutical industry is benefiting with excise free manufacturing zone. Himachal Pradesh and Uttarakhand have become super power in Indian Pharma Market due to excise free zone. Here matter of concern is that what will happen to Pharma companies who will have some excise free exemption due at time of implementation. After implementation of GST whether government will give them some time or they will also come under common tax slab. Second thing is of consideration is that what will be future of pharmaceutical industry in under developed areas where transportation and other expenses are more as compare to other financially developed states like Gujarat, Haryana, Punjab, Karnataka, Andra Pradesh etc. Before set-up of pharmaceutical industry in excise free zone, alone Gujarat was share of 40% in manufacturing of pharmaceutical products. If all over will be same tax structure, manufacturing units at under developed area will face hard competition from developed area’s manufacturing units.

Marketing Companies:

In Pharma sector, 99 out of 100 marketing companies enjoy tax advantages provided by excise free zones where tax is approximately 1.5 percent at bill value while excise duty is applicable at maximum retail price. Take an example of a Company. Suppose we purchase a goods from Baddi at that rate of 25/-(MRP: 65/-) at tax of 1.5% cst and sell it at 30/- at 2% cst. We have to bear 3.5% of tax. This tax is applicable at actual cost of invoice. As proposed GST will be applicable at MRP (Not confirmed but as per news). If GST will be 16% and will be applicable at MRP then we have to pay accordingly.

Excise Duty Zone:

Manufacturing Companies those are paying excise duty struggle lot in last decade due to excise free zones. There costing is much higher than companies situated at excise free zone. They have to pay excise duty along with vat. Suppose if our product costing is 25/- and mrp is 65/-. We have to pay excise duty at mrp along with tax. This increases production cost to higher level. After implementation of GST, Excise and other taxes will be removed, only GST will be applicable. All zones will be in similar tax slab. Excise zone’s Pharma companies production cost will become similar to companies manufacturing at excise free zone. This will give boast to these companies. There is need of more research and data at this matter for better interpretation.

DPCO:

Pharmaceutical industry is bearing effects of price control. Margins of small companies and franchise companies could be reduced to lower level. If GST will be applicable at MRP (Maximum Retail Price), it will increase suffering to next level. We can’t increase mrp but our tax slab will definitely be higher than what we get today thanks to excise free zones. At present tax rate is 1.5% in tax free zones, in interstate transaction tax is 2% (Against C-Form) and 5.25% (Without C-Form), and with in state it also varies 4 to 6%. This is applicable to invoice value only. In GST, proposed tax is 12% at MRP. One more possibility there, if NPPA allow addition of GST in maximum dpco price then companies can get relief. By this way medicines is going to be costlier. There will be many times increase in tax structure for pharmaceutical companies. Automatically margin will be reduced further. There is need of more research and data at this matter for better interpretation.

Supply and Distribution Chain:

We read an article which was related to need of change in distribution channel for pharmaceutical industry after implementation of GST. There are many possibilities and questions that will be clear only after implementation of GST. Few questions are:
Will there be any requirement for appointing c&f state wise because there will be single tax structure all over India?
If we will not need any c&f, what will be the structure of pharmaceutical supply chain?
Will companies supply directly to stockiest from their ware houses situated at particular place preventing some more margins?
Proposed GST will be collected by particular percentage of MRP. Suppose if MRP is 65/- and GST is 16%. Total tax that will be collected by the Government is 65*16/100=10.4/-Rs. In that case, there may be possibility if we build long supply chain, everyone will have to pay less tax in supply chain. There is need of more research and data at this matter for better interpretation.

Manufacturing Units:

Most of manufacturing units in pharmaceutical sector are dependent at job work, third party manufacturing or loan licensing etc. Manufacturing units in excise zone is going to get benefits from GST where as manufacturing units in excise free zone is going to suffer a lot. Excise free zone units were major advantage of excise free which is going to be end after implementation of GST (If government doesn’t propose any exemption for them). Majority of Indian pharmaceutical manufacturing units are situated in excise free zone and majority of marketing companies are situated in states like Gujarat, Chandigarh, Haryana, Punjab, Karnataka, Andra Pradesh and Telangana etc. Why a company located at South India will be going to get manufactured at North India if tax structure is similar all over India. Every company will try to procure goods locally. There is need of more research and data at this matter for better interpretation.

Medicines Without Invoice:

Availability of  medicines without prescription and without bill is very serious problem in all over India specially in states where licensing procedure is difficult process. GST may not be helpful in preventing medicines without prescription but it may definitely be helpful in preventing without bill medicine practice. Proposed GST is applicable at MRP value, Government will receive tax at MRP value. If any stage, anyone skip bill, it will increase the cost of supplier and will not be beneficial for none of them. 

Transportation Factor:

When production cost will be same, everyone will want to save indirect expenses like transportation cost etc. For less transposition cost, companies will prefer local or nearby supplier.

We will try to update this article at regular basis.

Hope above information is useful to you…

For any query and suggestion, mail us at pharmafranchiseehelp@gmail.com

Detail of Lists that may be beneficial for you to understand GST structure of Pharmaceutical products:  

LIST 1

1. Streptomycin
2. Isoniazid
3. Thiacetazone
4. Ethambutol
5. Sodium PAS
6. Pyrazinamide
7. Dapsone
8. Clofazamine
9. Tetracycline Hydrochloride
10. Pilocarpine
11. Hydrocortisone
12. Idoxuridine
13. Acetazolamide
14. Atropine
15. Homatroprn
16. Chloroquine
17. Amodiaquine
18. Quinine
19. Pyrimethamine
20. Sulfamethopyrezine
21. Diethyl Carbamazine
22. Arteether or formulation of artemisinin. 

LIST 2

1. Meta Aminophenol
2. Para Nitrochlorobenzene (PNCB)
3. Picolines
4. Novaldiamine
5. Ethoxy methylene diethyl-malonate
6. Hydrazine Hydrate
7. DL-2 Amino-1 butanol
8. Guanidine Nitrate
9. Citric Acid
10. 4,7-DCQ (Dichloroquinoline)
11. N-methyl Piperazine
12. D-2-Aminobutanol (O-Aminobutanol)
13. Diethyl Carbamyl Chloride
14. 4-Cyanopyridine
15. Isonico-tinic acid
16. Thiosemicarbazide
17. 1-Nitropropane
18. 4-Amino-4 Nitrodiphenyl sulphide
19. N-(4-Chlorophenyl)-O-Phenylene diamine
20. 5-Iodouracil (21) l-Acetyl-5-Iodouracil
21. 2-Amino-5-Mercapto-1,2,4-Thiadiazole
22. 2-Amino-5-Amino-Sulfomyl-l,3,4-Thiadiazole
23. 2-Acetylamino-5-Mercapto-l,3,4 Thiadiazole
24. Tetra Urea Complex.

LIST 3

1. Insulin
2. Lamivudine
3. Ritonavir
4. Saquinavir
5. Zidovudine.
6. Atazanavir 

LIST 4

1. Coconut husk crusher
2. Coconut husk defibering mill
3. Sifter or siever (for separating coir fibre from pith)
4. Turbo cleaner (for cleaning the fibre)
5. Bailing press
6. Willowing machine (for cleaning and preparing fibre for spinning)
7. Motorised spinning ratts.