GST impact on Pharmaceuticals

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.

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.

GST will also have positive effect on warehousing strategy. There are many of the pharmaceutical companies maintaining their warehouses in different states in order to avoid Central Sales Tax (CST) of different states. Post GST, manufacturers can set their warehouses at their strategic locations and consolidation of warehouses will take place across the sector.

There are various negative impacts on industry post GST. The medicines which are taxed at 5 per cent in some of the states will witness increment of another 13 per cent. In addition, it will impact free-drug samples, bonus schemes and the expired material return system followed by companies from the sector. Overall on the Pharmaceutical sector impact will be neutralised.