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Finally, the most anticipated Goods and Services Tax bill has been cleared the obstacles of both the parliamentary houses. Yes, it is absolutely a defining moment for the nation. Because this GST bill will not only make the taxation easy-to-understand but also decrease the malpractices prevalent due to confusion and uncertainty of tax norms.
The Ministry of Finance is likely to help and lift up the pharmaceutical sector by making efficient supply chain management and diminishing the manufacturing costs of pharmaceutical products. The diminishment in the costs will get added to the overall revenues, which is something worth being thankful for manufacturers.
GST was under consideration for more than two years, and we have had been featured a blog on the same on our website in 2016: http://www.biotichealthcare.com/effect-of-gst-on-pharma-industry/, now after going through several rounds of discussions, it has come out as the foolproof bill.
However, the government is determined to make it a win by taking all the essential means. Now the established obstacles are the matter of the past. As of now, the corporate world is gearing for understanding the conceivable effects of GST on the business.
What all will be subsumed in GST?
The principal objective of implementing Goods and Services Tax is to reduce (rather exclude) the extensive rundown of taxes and levies. As, it is the path towards simple and manageable tax liabilities, and expected to reduce the following tax burdens at the both central and state levels.
- Central level taxes
Countervailing duty, service tax, central excise duty, additional excise duties, special additional duties of customs, and excise duties under the medicinal and toilet preparations Act 1955 will get abolished by the new taxation system. Plus, surcharges on the supply of goods and services will also get abolished.
- State level taxes
Sales Tax and VT at the state level, CST, Entry tax, purchase tax, luxury tax, State level entertainment tax (over and above the tax at the local level), taxes on lottery and gamble will be merged under the GST head. Also, surcharges on the supply of goods and services at the state level will also get abolished.
Impact on the pharmaceutical industry in specific
• If a specific API or life-saving drugs are covered under any specific notification of the Central Excise Law, then they can take the leverage of non-levy of excise duty. Because the Central Excise Duty will get merged in GST, these life-saving drugs will enjoy the Tax-Free status. In case the previously mentioned goods are imported, they will enjoy exemption from IGST also.
"In fact, a major player in the domestic market, Kedar Upadhye, CFO, Cipla says that "The rates - 5 per cent for life saving medicines (zero earlier), 12 per cent on formulations and 18 per cent on APIs - are more or less in line with what the industry was expecting but a larger concern for the industry would be how the transition would be made to these new rates."
• It will be very interesting to know about the interpretation of the collection of credits when GST is applicable. Since pharma companies give a high stack into it, and the effect will be healthy or wholesome.
• In the present model of Indirect Tax law, goods made to a loan lessee enjoy exemption from VAT. It is essential that the manufacturers get the complete clarity about the post-GST implementation. Moreover, presently there’s no service tax on the processing charge paid to the loan lessee because the procedure comes under “manufacturing process”.
• However, the proposed bill guarantees that the current advantages will be continued, it is highly important that industrialists make the circumstance clear.
It will be very intriguing to know how things happen?
Since the government has demonstrated the goals of implementing Goods and Services Tax w.e.f. 1st of April 2016, it will be very fascinating to see the change occurring in the next 6 months. Businesses closely see the happenings around and the recommendations of the steering committee about things like dual threshold and exemption in the GST regime. Plus, it will be exciting to see the recommendations about Revenue Neutral Rate for GST and SGST.
Stay tuned with us for more updates on GST!