GST: How will it impact the Pharmaceutical Industry

The Indian pharmaceutical industry, with a domestic turnover of over $15 billion, has been witnessing high growth over the past decade. But it is facing problems like cumbersome taxation, heavy competition and increasing price controls. The goods and services tax (GST), India’s biggest indirect tax reform, is expected to be beneficial for Indian drug makers in the medium to long run as it aims to simplify tax structure and bring operational efficiency. However, concerns about drug prices, exemptions and compliance still remain.

The long awaited Goods and Services tax (GST) Bill has been passed by both houses of India. There will be significant improvement in Indian Pharmaceutical industry's supply chain efficiency as well as a decline in manufacturing cost of Pharmaceutical products. As far as the health care and pharma industry is concerned, it is expected that the new GST legislation would benefit the consumers by making affordable health care a reality.
GST will also have positive effect on warehousing strategy. There are many pharmaceutical companies maintaining their warehouses in different states in order to avoid Central Sales Tax (CST) of different states. The prime observation is that the removal of the one percent origin tax on inter-state supplies is the key amendment in the Bill. Post GST, manufacturers can set their warehouses at their strategic locations and consolidation of warehouses will take place across the sector. 

Post GST, Pharmaceutical industry's traditional cost and distribution model will get replaced by supply chain efficiencies. The central tax subsumed under GST and interstate transactions between two dealers will become tax neutral. This will lead to decrease in cost which can be added to margins.

If the pharma sector is touched by GST, the purpose of the National Pharmaceutical Pricing Authority (NPPA) will become redundant. NPPA is trying to bring the prices down and is succeeding in its endeavor. If the drugs come under GST regime, NPPA's efforts will be in vain.