The financial year of 2016 – 17 have witnessed major upheaval and significant reforms. These reforms were targeted to change the Indian market scenario. One of the major changes witnessed was the execution of GST. It has shaken the Indian market and turned the tables upside down. Each and every industry has been greatly affected by the new GST rules.
The effects of the newly executed Good and Services Tax have been uncertain upon the pharmaceutical industry in India. Though the possibilities and predictions have proved it to be beneficial for the pharma sector.
Though the changes that have been observed significantly are in the manufacturing units – the tax brackets for raw materials for API and various medicinal salts and chemical compounds have been shifted from 5 percent VAT to 12 percent GST.
Different sectors observing different impacts –
Since the cost of raw material is being increased up to 7 percent, thus, the margins have to be attained by compensating with the Maximum Retail Price (MRP) of the good and services produced. Though the net effect of GST to the end customer is being reduced significantly up to 4 percent. Since the pharma companies will be looking forward to transfer the burden of higher raw material costs on the shoulders of the end customers, one should be ready for a sudden increase in the cost of medicines. Government is ensuring this business strategy and thus, works efficiently in improving the drug price-controlled medicines.
On the other hand, some experts do believe that the pharma industry will be benefited more by the GST rather than bearing losses. In the Indian market, pharma industry has been the most powerful sector and thus, it is levied upon by 8 different taxes. An amalgam of all these taxes into a single tax would definitely heal the burns. Moreover, the rationalization of pharma product distribution and supply chains adds to the pharma industry after GST execution. This seems to be a plus point with respect to the end customer, but the mediators in the supply chains are not facing many amendments. For the retailers and wholesalers,the costs will soon be adjusted and revenue will be generated like before.
Opinion of the Experts-
The main motive of the reformed GST should be to empower the end customers in receiving the proper medical facilities within budget. Healthcare and medical facilities are important and thus, needs to be affordable for all. This financial reform will boost up the industry and availability of the basic facilities to meet needs of the common people.
The major concerns revolving around –
The life-saving medications and healthcare facilities are under the clouds of uncertainty whether they will be free of cost or not. Before the execution of GST, these life-saving medications, facilities, and devices were free from excise duty and any kind of tax.
Another major concern is the inverted duty structure. The manufacturing costs are much higher than the products’ costs, which can cause imbalance in the industry. The interests of pharma companies will soon shift if proper balance is not maintained by the government.
The bottom line still lies in the fact that the impacts are vague and unclear until now. Though the experts are very confident about various benefits received by these pharma companies. End customers are also having advantage after GST execution. It will be interesting to look further how the government works against the challenges laid in their path.