1. GST impact: Medicines may get scarce as pharmacists cut stocks on input tax credit concerns

GST impact: Medicines may get scarce as pharmacists cut stocks on input tax credit concerns

GST Council increased the limit on input tax credit against excise payments without excise payment receipts to 60% from 40% earlier on the tax rate of 18% and above but there seems to be no benefit for retail pharmacists even with this increased limit.

By: | Updated: June 6, 2017 3:52 PM
There could be a scarcity of medicines in June as retail pharmacists may choose to return the current stocks they hold and reorder fresh stocks from 1 July onwards, when GST comes into effect. (Image: Reuters)

As the much-awaited GST rolls out on July 1, India may be staring at a possible shortage of medicines in the run up to the implementation of the new tax regime, as the pharmacists across the country may lower inventory of goods bought on the payment of excise duty. The GST Council has increased the limit on input tax credit to 60% against excise payments from 40% earlier on items with tax rates at 18% and above without excise payment receipts, but there seems to be no benefit for retail pharmacists even with the increased limit.

Vinayak S Datey, Senior Consultant, Taxmann.com, told FE that although there will be no major change in the prices of medicines once GST is implemented, the current input tax credit mechanism gives no incentive to the retail pharmacists as the benefits received under the input tax credit need to be passed on to the consumer and so the retailer is not benefitting in any way.

Datey added that the huge number of products that a medium to large sized retailer stocks will also add to the confusion as it would require the retailer to keep track of the input tax credit received on various items in his/her inventory and then update the same in the account books. This would be more manageable in case of retailers who sell a few items only, Datey said.

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Also, in most of the states, the VAT on the pharmaceutical products is charged on the maximum retail price and is charged at a single point. Therefore, the distribution channel does not pay any tax or file tax returns, but now they will need to get registered, pay the taxes and file timely returns annually, which may prove to be a daunting task.

Usually, the onset of monsoon brings in seasonal diseases and medicine sales rise at this time of the year on increased demand. In an effort to avoid any crisis, the government has reportedly held meeting with the concerned establishments through the National Pharmaceutical Pricing Authority (NPPA).

“NPPA holds fruitful discussions with industry and trade associations to ensure uninterrupted supply of drugs on implementation of GST,” the national drug price regulator said.

Pharmaceutical manufacturers too are worried about the impact of GST on their sales at a time when the industry is recovering from disruptive events such as tightening of rules by foreign and domestic regulators and low demand due to demonetisation.

“There has been fair amount of destocking happening in the channel. “I think this will continue possibly till the time GST is rolled out. We have to give it month or month and half until normalcy returns,” Umang Vohra, Global CEO and MD, Cipla, said in a recent earnings call.

“In the Indian market, there is uncertainty in the trade channels due to the upcoming GST implementation, although it may be temporary,” Dilip Shanghavi, CMD, Sun Pharma, said.

“Companies focused on the domestic market like Alkem, Torrent Pharma and Cipla will experience some difficulties in 1HFY18, owing to the impending GST implementation and resultant channel disruption,” HDFC Securities said in a research report.

  1. N
    Nikhil M
    Jul 7, 2017 at 11:21 am
    As mentioned Vinayak S Datey “although there will be no major change in the prices of medicines once GST is implemented, the current input tax credit mechanism gives no incentive to the retail pharmacists as the benefits received under the input tax credit need to be passed on to the consumer and so the retailer is not bene ing in any way.” So maintaining accounts will be easy for Indian retailers and tax cheating will not be done anymore. GST impact is naive. I have read one interesting article decisiondatabases
    Reply
    1. S
      Suresh Kumar Madakkavil
      Jun 6, 2017 at 4:47 pm
      This is only a drama by drug stockist. Why media is giving attention. No drama will be entertained by present Central Govt led by shri shri MODIJI
      Reply
      1. Samir Mahindra
        Jun 6, 2017 at 4:02 pm
        Like GST in many other countries their is VAT and all retailers big and small have to go through same accounting and do ent tracking processes to get the tax credit it is a one time excersise to setup a proper accounting system. Indian retailers of all ilks have been tax cheats for so long, it is no longer going to be possible for the informal sector to thrive, many retailers in cities such as Mumbai still crid on use of Debit Cards for payments and they want to keep all their books in cash so they can keep hiding profits that is the crux of the problem the business community largely wants to keep dea in the informal sector to hide from taxes and reporting true s numbers.
        Reply

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