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On July 1st, 2017 Goods and Services Tax came into existence by the implementation of the 101st Amendment of the Constitution of India. It is an indirect tax. It takes account of expenditure done through the sale, manufacture, and consumption of goods & services at a national level. It involves companies, industries and services. GST will decrease the manufacturing price which will result in a positive impact on the Indian Pharmaceutical Industries. National Pharmaceutical Price Authority has issued necessary instructions to fix drug prices for the vital medicines to make it affordable for everyone. According to the revised list issued by NPPA(National Pharmaceutical Price Authority) ,the prices of the majority drugs have come down, which includes a list of antibiotics and drugs for treating cancer, HIV, diabetes.
Goods & Services Tax Law in India is a complete, multistage,
destination-based tax that is levied on every
charge addition. Many indirect tax laws has been
replaced that earlier existed in India by GST Law.
The tax came into consequence from July 1st, 2017
during the implementation of 101st Amendment of the
Constitution of India by the Prime Minister Narendra
Modi. GST an meandering tax system which takes
financial credit expenditure prepared through sale,
manufacture, and consumption of goods & services at a
national level which mainly involves companies,
industries and services area. The main idea behind it is
to eliminate the tax levied of state and central
It involves three stages:
Under the Essential Commodities Act, a Drug Price Control Order is issued to ensure that the costs of crucial medicines which are required in large amounts are set in such a way that they are reasonable for each person. The order has its roots in 1970 when the government realized the sick effects of the high profitability of medical drugs and the companies which made them.
The GST Rates for medicines were decided by the GST Council in the meeting held on 3rd June, 2017. GST is levied in 5 different rates, specifically NIL, 5%, 12%, 18% and 28% based on the HSN (Harmonized System of Nomenclature) code of the article. Medicines and pharmaceuticals are classified under 37th chapter of the HSN Code.
The following types of medicines and pharmaceutical products are free from GST:
Goods under the subsequent HSN categories are taxed at 5% GST rate:
Nicotine polacrilex gum is the only medicine or pharmaceutical creation taxed at 18% GST rate. No pharmaceutical or medicines have been taxed at 28% GST. Hence, the maximum applicable GST rate for medicines is 18%.
The 122nd improvement Bill was passed as the
Constitution's One Hundred and Twenty-Second
Amendment Act, 2017. It will be affecting several
industries, businesses, and companies at the same
time. The pharmaceutical industry occupies a unique
case owing to the medicinal and pharmaceutical
requirements it provides. If taken the share of GDP, it
contributes to 5% of it. The Government of India with
GST Council and its Chairman, Union Finance Minister
of India – Arun Jaitley have introduced it so as to
enhance FDI (Foreign Direct Investment). The
alteration will bring about some changes in each
Goods and Service Tax is expecting to have a encouraging impact on the Indian Pharmaceutical Industries as it will decrease the manufacturing cost since eight different taxes are levied in the pharmaceutical industries helps in easy going business. It will eradicate the cascading effect of multiple taxes applied on One Product.
The Biggest reward for the Industries: conventional Cost and delivery Model will get replaced by supply chain efficiencies due to discontinuance of the Central Sales tax and interstate transactions between two dealers will become tax neutral. This will lead to a decrease in cost which can be added to margins and even consumers will get profit from it. This will provide absolute freedom to the companies to discover strategic supply chain and distribution channel. Additionally, it is uncertain till now that the healthcare services and lifesaving drugs will continue to be exempted or not under GST Regime. Under Current Indirect Taxation, these are exempted from Excise Duty and Custom Duty and a few states charge 5% taxes on Medicines.
The rate of GST should be kept at a relative level in the lowest slab for the pharmaceutical industries. Analysts specify the GST rate up to 12% to be neutral tax rate whereas no matter which above will have an inflationary effect on pricing. GST Council has finalized the tax rates of the goods in Nil, 5 percent, and 12 percent kind.
GST eliminate the cascading effect of the tax which
involved multiple taxes applied on only one Product.
The costing and taxation system will be easy with only mountainous of three accounts. It will create a general market for every person with an equal chance towards development across various states. Due to discontinue of the Central Sales Tax and Interstate transactions between two dealers the conventional Cost and distribution Model will get replaced by supply chain efficiencies and tax will become impartial.
With helpful effect, there are a few unhelpful effects on the pharmaceutical industry:
Although through the various points mentioned above GST has both the positive as well as negative effect on pharmaceutical businesses. But the quantum of positive impact is more and government is still working towards the changes to reduce the negative effect and such activity is an ongoing process for the further improvement. Lack of proper knowledge, training and infrastructure neeed for the implementation of GST was also a hinderance in the smooth implementation of GST but it is now becoming easier and more adaptable.