Impact of GST on PCD Pharma companies

Impact of GST on PCD Pharma Companies

What is GST?

GST (Goods and Services Tax) is unified tax system which has come into effect from 1st of July. Most of the indirect taxes like sales tax, VAT, Excise, Octroi, Entertainment tax, custom duty etc have been subsumed in GST. It is said to be the single biggest economic reform since India got Independence. It is being said that it would help most of the sectors and make the taxation process easier as it will succeed a number of different taxes and duties, make the tax compliance smoother and easier and will make the whole of India as one market. It is also being said that the absorbing of these taxes into one uniform tax will facilitate the way of doing business in the country.Through this article we will explore the impact of GST on Pharmaceutical industry in brief and  Imapct of GST on PCD Pharma Companies in more details:

Impact on Pharmaceutical Industry:

It is anticipated that GST would have a positive  effect on the Healthcare Industry particularly the Pharma sector. It would help Pharma Industry taxation system since many different types of taxes were applicable on the Pharmaceutical Industry. GST will curtail the negative effects of taxes that is applied to one product. GST would also improve the operational efficiency by rationalising the supply chain that increases the expenses of Pharmaceutical industry. Moreover, GST implementation would also enable a flow of continuous tax credit, improvement the overall compliance create an equal level playing field for the Pharmaceutical companies in the country. One more benefit likely to follow due to GST is the reduction in the overall cost of  technology. Currently, the technical machinery and equipment which are imported into the country by the healthcare sector are very costly. Also, the duty which was levied was not allowed as a tax credit under the pre-GST tax regulations. However, with GST this scenario has changed. Under GST, duty charged on the import of such equipment and machinery would be allowed as a credit.

Impact of GST on PCD Pharma Companies :

You will see that in short term, GST may be a pain because of its implementation. In medium term, it will become neutral but in long term, it will play a very positive role for  Pharma Franchise companies in India (as well as on the overall Pharmaceutical Industry).

GST effects on PCD Pharma companies

Impact on prices (MRP) of medicines after GST:

On most of the medicines, the tax slab is 12% under GST, which is higher than the earlier applicable CST of 2-5 %. Will that lead to increase in process of medicines? NO.  Besides CST, the following taxes were applicable.

1. Excise Duty (Manufacturing stage)

2. VAT

3. Octroi

These taxes impacted that prices of medicines. Now these are being replaced by only GST with added benefits of input tax credit on purchases, expenses and reduced logistic costs. So, GST will not have any major impact on the prices of the medicines. So  no negative impact on PCD Pharma companies in India.

Impact on Trade Prices medicines after GST:

The same logic as given above is applicable on trade process as well. The PCD franchisee need not pay VAT also (applicable on MRP in some cases) which was from varying from 5 to 7% in different states. Besides this the franchisee will have the following added advantages in GST are :

1. Input tax credit on purchase

2. Input tax credit on other expenses

3. No need of way bill/ road permits (hence lower cost of compliance).

So, the trade prices also are not supposed to increase under GST.

Level playing field:

Many unscrupulous players and garage type of industry which hitherto had been getting unfair advantage because of lack of transparency will have face the heat as they will have to ensure compliance. It will lead to a better level playing field for more organised and tax compliant companies as well traders.

Importance of GST Registration & TAX Invoice under GST:

To claim input tax credit, the trader will have to have GST registration and issue TAX invoices to his customers. So, all the traders will get encouraged towards tax compliance.Any trader dealing in medicines without invoices will be disadvantaged as compared to others.