Indian pharmaceutical Industry stands out globally as the fourth largest producer of pharma products preceded by USA, Europe, Japan and China. The absolute advantage of IPI (Indian pharmaceutical Industry) is the cost cutting labor intensive production that brings down the overall cost of production ( Ex- Almost half the cost incurred by pharma Industry in USA) but the cascading taxation system in India makes it sluggish.
It faces multistage taxation ie Import Duty on outsourcing, Excise Duty on manufacturing, CST on sales, Service tax on propagated services and other levies from States. This system creates a lurching effect on its progress.
GST (Goods and Services Tax) is the main agenda of the government at the moment. GST, if Implemented in an empirical way will suspend the taxation web and thus secure the loss of tax credit and compliance at different levels.Pharmaceutical Industry will unwind maximum benefits from the implementation of GST.
The immediate impact on pharma Industry will be closedown of the seepage of credit of tax paid. At present, manufacturers procure raw material either from other countries and pay Import duty or from different States paying CST on the rates levied by individual State government. The unfortunate remained fact for the manufacturers is that the tax paid on purchases can not be remitted through local VAT (Value Added Tax) which then can be faced off.
Indian pharmaceutical Industry has numerous retail outlets across India accounting 700,000 as per the mom and pop model, report 2011. Out of which, 95% falls in unorganized sector which is quite big in number than China and Brazil. It shows that India is a huge market and is expanding further. There is an imperative demand of developing an organized sector which will provide efficient and rational value addition in a uniform manner. It will bestow services like online pharmacy, 24×7 assistance, Insurance coverage, nurse station, wellness destinations etc. Government has also liberalized the entry of FDI in pharma upto 100%, which will create a significant footfall for global organized players. The delay in this lucrative strategy is the implementation of GST bill.
Pharma Industry render logistics for transportation from manufacturing unit to warehouse and warehouse to retail outlets. This industry also depends on the carry and forward agents (C&FAs) in the supply chain which constrict the profit margin. As it is clear that GST will consider the entire country as a common market. Under GST, availability of tax credit in logistics would be created as it covers tax on both goods and services. It will also lead to the elimination of C&FAs.
Indian pharmaceutical Industry will also face challenges post-implementation. As of now many States like Himachal Pradesh, Uttaranchal enjoys tax exemption on manufacturing which will be then laid off .
Introduction of Active pharmaceutical ingredient (APIs) in life saving drugs is under exemption from Excise duty for its manufacturing. It will be relevant to keep life saving drugs tax free under GST implementation.
There is a ray of hope for every Industry if GST comes in practice. Hope it comes as good and great tax system.