The pharmaceutical sector expects some impact, at least in the short term, once the goods and services tax (GST) is implemented. Drug makers–big and small, are busy evaluating the impact of GST and are taking steps to get ready for the new tax regime.

As per the GST slabs, the tax on most pharmaceutical products and formulations (medicines) is 12 per cent, while active pharmaceutical ingredients (API) would be subject to 18 per cent. In this scenario, the pharma industry is concerned about the rise in costs. However, life-saving drugs have been taxed at five per cent.Earlier, pharma products were taxed at 9-10 per cent.

“GST will considerably increase the working capital needs of the companies in the near term. Another concern is that pharma supply chain is not fully familiar with the GST law. The sector may have a temporary setback on demand and internal plans,” said Badree Komandur, executive director, Strides Shasun.

“However, we expect a cost reduction of about three per cent for finished formulations, due to the benefit of seamless input credit available for most of the inputs (both goods and services) against input credit presently not available for credit under the existing tax provisions,” he added

Most pharma firms were concerned about the increase in working capital requirements and stated that their immediate focus is on addressing this requirement.

“Small and medium pharma companies are yet to gear up for the new GST tax regime. While big pharma companies and MNCs might be able to deal with the increase in working capital requirement successfully, as they have deep pockets, small and medium companies in the sector will face a challenge. Though costs will rise temporarily, we are hoping that the GST will streamline the sector in the longer run,” said Sankara V Krishna Prasad, CEO, Hyderabad-based Cito Healthcare.

Pharma companies’ cash flow will be hit post GST, said Santosh Dalvi, partner (indirect tax) at KPMG India.

“Pharma companies will also have to look at the supply and distribution channel, to ensure that there is no shortage of drugs,” he added.

Source: Indian Express