Impact of GST on Pharmaceutical Sector in India

GST(Goods and Service Tax) is the new single indirect taxation system that has amalgamated the other indirect taxes. GST implementation started on 1st July 2017 in India. GST in India is a game changer for all the industries. The Indian pharmaceutical industries provide around 20% of the generic drugs globally. GST in India has affected the pharmaceutical industry just like other industries.

How is the Indian Pharmaceutical Industry affected by GST?

The impact of GST on pharma sector is much constructive in several ways. Earlier, on the pharmaceutical industry eight different types of taxes were levied, but after the GST implementation, one uniform tax would ease of the whole business. This will boycott the increase of multiple taxes cost overall till it reaches the consumer. The Indian pharmaceutical industry would face efficient product rationalization of the supply chains. With the GST implementation, all the pharmaceutical industries have to review their distribution network so as to form an equivalent field for the pharma industries. The impact of GST would further reduce the manufacturing cost due to the withdrawal of Central Sales tax. Finally, the end consumer would a pay lesser amount than earlier for the drugs.

Additionally, the GST would also diminish the total technology cost. The Indian pharmaceutical industry imports lot of medical equipment from abroad. Now, with GST the duty charge on the import of medical equipment would be a tax credit. This would surely decrease the burden of extra cost and would surely help the pharma sector to utilize this cost in further medical researches.

VAT vs GST on Pharmaceutical products

The VAT rate for the pharmaceutical products was approximately 5% and for the medical formulation 9%. The pharmaceutical industry used to pay an excise duty charge of 12.5% of the pharma products. But, at the same time, there was a relief of excise charge in the excise-free manufacturing zones. With GST implementation, the tax on the pharmaceutical products ranges from 5 to 12%. The drugs that cure malaria, dengue, HIV, diabetes and other common diseases are charged at 5% tax.

GST in India has put only Nicotine polacrilex gum at a tax of 18%. The Ayurvedic medicines had a profound GST impact. Now with GST, they will be charged at a rate of 12%. The distributors of the pharmaceutical sectors would also have to file a minimum of 37 returns per year. All surge practices of giving bill without medicine would be vanished and non-beneficial. The benefit of excise free zones is still not clear due to a single uniform tax. The government is yet to provide clarification on the benefit of pharmaceutical manufacturers that fall in the excise zone. With respect to MRP of the pharmaceutical products, the overall amount is to fall after GST.

GST in India is thus, a bold step taken up by the government to benefit the manufacturers, distributors, suppliers, and the end consumers on the whole. The end result says GST would definitely benefit the Indian pharmaceutical industry as it would cut down the complexities and different type of indirect taxes.


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