The most awaited reform in indirect tax – GST will finally roll out on 1st
July. There are many positive and negative effects on several industries and
sectors. But, GST has an entirely different impact on medicines. Due to this
change, there is a possibility of medicine shortage in the coming days as
pharmacists across the country may resist stocking them.
Actually, pharmacists are not interested in stocking medicines by paying excise duty. With the decision of increasing the limit of Input Tax Credit (ITC) from present (excise payments) 40% to 60% on goods taxed at and above 18%, GST has forced pharmacists to react so. But, it seems that an increase in ITC will not benefit retail pharmacists.
There is no significant impact on prices of medicine under the new tax regime of GST. Under this tax mechanism, ITC received by retailers will be passed on to consumers. Hence, there will be no incentives for retail pharmacists and no benefits in any way.
But, the chaos will increase as every small and medium medicine retailer has to track a huge number of products. They have to track every inventory and input tax credit received on various items for accounting. They need to update ITC time to time in their account books. It will be quite confusing for those who sell large varieties of products.
Many times, distribution channel doesn’t have to pay tax or file returns because, in many states, VAT is deducted upfront on MRP at a single point on pharmaceutical products. Hence, there were little formalities under the earlier tax regime for the distribution channel. But, now people involved in distribution have to register under GST portal. They have to file returns as prescribed and pay taxes which may be hassling for them initially.
Generally, during this period between June and July, there is an increased demand for medicines due to the onset of monsoon. Seasonal changes always increase the demand and a shortfall of medicines would create a crisis-like situation. To avoid that, the government has reportedly held a meeting with National Pharmaceutical Pricing Authority (NPPA) to convey their concern over these issues.
In response to the government’s concern, NPPA held discussions with all trade and industry associations to ensure continual distribution of medicines during the implementing phase of GST.
On the other hand, pharmaceutical manufacturers are also worried about the implementation of GST and its impact on them. They are already concerned and reviving from past disrupted events including the strict rule of domestic and foreign regulators and low demand in the market due to demonetization.
The CEO and MD of Cipla said that fair amount of destocking has been done by supply channel and it will continue even after the rollout of GST. It will take a month or two to stabilize the situation. CMD of Sun Pharma said that uncertainty in trade channel is temporary due to GST implementation. According to a research report of HDFC securities, companies focusing on domestic market will experience some difficulties in the coming days.
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