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.