Impact of GST on Indian Pharma Sector
GST (Goods and Services Tax) was implemented in India from 1 July 2017, which had a major impact on the pharma sector. Earlier, companies had to pay different taxes like VAT, CST, excise duty and service tax, which was a complex system. GST replaced all these taxes and introduced a single tax system, which made the billing and accounting process easier.
The GST rate ranges from 5% to 18% on pharma products, due to which the rates of some medicines increased, while some also reduced. Stock transfer and taking input tax credit for distributors and retailers also became transparent. Supply chain process and transportation also became faster because interstate tax barriers were eliminated.
Some small medical shops initially had difficulty in adapting, but in the long term GST has made the pharma sector more professional, organized and efficient.
Noteworthy Angles That Raise Questions
Excise Free Zones under GST
Excise Free Zones are special industrial areas where earlier companies were exempted from excise duty, like Himachal Pradesh, Uttarakhand, North East. After the introduction of GST, this exemption was abolished and companies started paying regular GST. Now they only get budget based refunds, not full tax exemption.
Promoting Pharma Companies in GST
Promoting Pharma companies are those PCD pharma companies that launch products in the market under their own brand name, but get the actual manufacturing done through a third-party or loan license manufacturer. In the GST system, they also have to do full compliance – like invoicing, GST return filing, and taking input tax credit. These companies focus on marketing and distribution, manufacturing is not their core work.
Excise Duty Zones
Excise Duty Zones are those industrial areas where the government used to give exemption to the companies from excise duty so that they could set up units there. These zones were created in regions like Himachal Pradesh, Uttarakhand, North East. Their main purpose was to bring development in backward areas. After the introduction of GST, these excise benefits ended and uniform GST started being levied on everything.
DPCO
DPCO full form is Drug Price Control Order is a government regulation under which maximum retail price (MRP) of essential medicines are fixed. DPCO is applicable even after GST, i.e. companies cannot add GST on DPCO medicines. The price of these medicines is already under government control, hence their MRP is inclusive of GST. This rule maintains pricing transparency.
Manufacturing Units
In the GST system, manufacturing units are the places where raw materials are processed to make final products. These units have to take GST registration and have to charge proper GST on every supply. One also gets the benefit of Input Tax Credit (ITC), through which GST paid on raw material can be adjusted. Everything is managed through proper invoicing.
Pharmaceutical Without Invoice in GST
Under GST, selling pharmaceutical products without invoice is considered illegal. Invoice is an official paper which tells that the deal is genuine and GST has been followed. Selling goods without invoice carries penalty, interest and even the risk of license cancellation. This promotes black marketing, hence invoice is mandatory in the GST system for every sale, big or small.
