What will Be The Effect of GST On Pharma Industry

Effect of GST On Pharma Industry /Healthcare Sector – GST is the new talk of the town. The abbreviation GST stands for Goods and Service Tax which is said to be levied from July 2017 all over India. The 122nd Amendment Bill was passed as the Constitution’s One Hundred and Twenty-Second Amendment Act, 2017. It will be affecting numerous industries, businesses, and companies at the same time. The question arises, what will be the effect of GST on Pharma Industry & Healthcare Sector?

The pharma industry occupies a special case owing to the medicinal and pharma requirements it provides. If taken the share of GDP, it contributes to 5% of it. The Government of India with GST Council and its Chairman, Union Finance Minister of India – Arun Jaitley have introduced it so as to increase FDI (Foreign Direct Investment). The change will about some changes in each individual industry. In this article, we will be discussing Impact what will be the effect of GST on Pharma Companies.

Effect of GST On Pharma Industry

What Is GST? What Are The Advantages Of GST?

GST or Goods and Service Tax is an indirect tax system which takes account consumption done through sale, manufacture, and consumption of goods & services at a national level which mainly involves companies, industries and services sector. The main idea behind it is to abolish the tax levied of state and central government. It involves three stages:

  • State GST (SGST) (levied by State
  • Central GST (CGST) (levied by Centre)
  • Integrated GST (IGST) (levied by Central Government on inter-State supply of goods and service)

GST involves elimination and combination of thirteen indirect taxes which are as follows:

  1. Value Added Tax (VAT)
  2. Taxes applicable on lotteries[7]
  3. Service Tax
  4. Purchase Tax
  5. Octroi Duty
  6. Luxury Tax
  7. Food Tax
  8. Entry Tax
  9. Entertainment Tax
  10. Commercial Tax
  11. Central Sales Tax (CST)
  12. Central Excise Duty
  13. Advertisement taxes

Only 8 taxes which were levied on pharma will be applicable to pharma industry which is a good news.

Positive Effects of GST On Pharma Industry

Postive Effeects of GST On PharmaGST aborts the cascading effect of the tax which involved multiple taxes applied on only one Product. The costing and taxation system will be simplified with only mountainous of three accounts. It will create a common market for everyone with an equal opportunity towards growth across various states. Due to discontinue of the Central Sales Tax and Interstate transactions between two dealers the Traditional Cost and Distribution Model will get replaced by supply chain efficiencies and tax will become neutral.

  • Under GST, the life-saving essential drugs like the Oral re- hydration salts, Diagnostic Kits for detection of all types of hepatitis and various other life-saving injections ad drugs fall under the slab of 5%.
  • Bonus/Discount Schemes, Free-drugs samples, Interstate stock transfer, etc are said to be costlier for firms because of its applicability of phases of the supply chain.
  • Pharma manufacturing generic/branded formulations/ dietary supplement companies who were suffering because of heavy excise duty will see a great profit due to reduced taxation and low manufacturing cost for all firms.
  • The maximum GST on bulk drugs is 18% and on formulations, it will be around 5% & 12% at maximum. This means the formulators will be paying more tax through GST. Thus, they will be charged less on formulations. It means the input credit will be accumulated which will be refunded itself.
  • Pharma companies and businessmen will find the freedom to explore strategic supply chain and distribution channel.
  • CENVAT CREDIT is a credit balance in a bank account which can be refunded/ adjusted towards the central excise on the purchase or duty paid on a final product. The issue seems to finish for pharma industry due to GST charging single rate for goods and services


Negative Effects of GST on Pharma Industry

negative effects of GST on Pharma industryWith positive, there are some negative effects on the pharma industry:

  1. Many Ayurvedic products are falling in the slab of 12% to 15% as many of the ayurvedic products falling under cosmetic range.
  2. GST is said to increase the indirect tax paid by pharma companies by 60 %and MRP by 4 percent. Thus, leaving a Tax rate of 15% which is said to be 18% for diagnostics and reagents.
  3. Other pharma drugs, medicines, Pharma products, and medical technology products are ranged between 5% or 12% with mostly being a total tax (including VAT) of 11.5 to 12.5 percent to 18%.


GST can be good or bad for your company. preparation in advance for the adverse is the thing to do. The key stakeholders such as distributors, associates, suppliers, and buyers and the internal stakeholders i.e. employees should be aware of the plans and progress in every situation which can be forecasted.