Effect of GST on Pharma Industry

December 12 , 2018

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Effect of GST on Pharma Industry

The Goods and Services Tax (GST), a next stage advancement of multi-level taxation system is majorly influencing the pharma industry. The pharma industry is gaining additional benefits from this GST implementation as compared to other industries. Although India based pharma industry stands out as the fourth largest manufacturer worldwide due to its volume and also vies with the countries such as USA, Japan & China, it also faces the same issues as faced by other industries. These issues encompass Central Sales Tax (CST) on raw material, limitations of value-added tax (VAT), and accumulations of VAT credit, etc.

Despite the aforementioned issues, GST seems like a boon for Indian pharmaceutical manufacturers as it is changing the manners in which pharma business was carrying out. It not only helps in rationalizing the tax structure but also optimizes distribution. “Proposed discontinuance of CST” is another most visible impact of the GST. It is a cost basically to pharma producers at whatever time they obtain raw materials from the outer-states as well as if the sale is based on the interstate. It is mainly due to the fact that CST paid during buying cannot be set off in opposition to the manufacturer /dealer’s VAT liability.

Another major effect of GST is its influence over the present warehousing strategy of pharmaceuticals. Most pharma manufacturers prefer to keep their warehouses up in different states in order to save a big on the CST. However, some prefer to set up warehouses in such locations where the CST rate is low as compared to other states. Thus, with the introduction of GST to pharma industry, pharma manufacturers can look to optimize and strategize warehouses without having the need to look at the same tax planning preferences.

As a result, pharma companies need to move towards such benefits & effects in order to have a better future in pharma industry. Those manufacturers who have just moved are likely to avail all such benefits of cost and service levels more than their challengers, and also offer better value recommendations to the consumers.

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