Impact of GST On Pharma Products Price – Goods and services tax took the country by storm when it first passed the passed by both houses and said to be applied by the July 1st. Every industry is affected by the implementation of GST, the pharmaceutical or healthcare sector that contributes 5% of the GDP of the country has some impact of GST on Pharma Products Prices. Indian Pharmaceutical industry is huge, we are the 3rd largest pharmaceutical market in terms of volume and 14th in value.
With the passing of GST everyone is looking forwards to known about the impact of GST on Pharma Product’s Prices. For most the industry it makes taxation process way too easy by replacing a number of different taxes and duties. In pharma industry, GST brings relief to the tax players by simplifying the taxation process. Earlier where there were 8 or more different types of tax to pay to the government now with the GST it is much easier. But what is the impact of GST on the GST on product Prices concern the many.
What is GST?
Before going any further it is important t understand what GST really is and then determine its impact on the pharma products. GST (Goods and services tax) is a unified tax system which will replace all indirect taxes like VAT, CST & others by only one way to paying Tax that is GST. It has simplified the complex tax payment in the pharmaceutical sector.
What is the Impact of GST on the Pharmaceutical Products?
Since the GST has altered the taxation process and there are a rise and fall in the tax percentages of some products this has an impact in the price of the products. There are still areas on which the government needs to provide clarification like for the manufacturers under excise for operating from the excise free manufacturing zones. Here mentioned below is the impact of GST on the Pharma Products:
- For the drugs which used to cure malaria, HIV-AIDS, tuberculosis, and diabetes were previously charged VAT around 4% now falls under the 5% bracket.
- In the case of Ayurvedic medicines which were earlier charged with the VAT of 4% and excise of 1.5% due to excise free zone benefits. With the implementation of GST, the tax now has increased to 12% on Ayurvedic medicines which have increased the cost of these products.
- Earlier the distribution channel does not use to be the part of Payment of tax and filing a tax return. But now with the GST they will be required to register and file the minimum 37 returns annually as required under GST.
- Providing medicine without the bills will not be any long beneficial for the distributors and thus billing of the medicines will be done. This will provide the genuine price of the products.
Difference in the price before and after GST
Consider that Innovexia Life Sciences has two customers, that is customers A and Customers B. Here Customer A is local customers belong to the Mohali and Customers B from the another state. Assume that both customers buy one box of the drug from the company with the price of 300 per box.
Bill to customer A : 300 + 5% (VAT) = 315/-
Bill to customer B : 300 + 2% (CST) = 306/-
- When customer A sell goods in Mohali@ 350 : 350 + 5% (VAT) = 367.5
Customer A will reduce the 15 rupees tax he paid to Innovexia and rest 2.5 rupees will be paid to the govt. Here he got the profit of 5.
- When Customer B Sells goods in his state @ 350: 350 + 5% (VAT) = 367.5
Customers have to pay 17.5 VAT to govt and he cannot deduct CST 2% paid to the company. Here is the net profit is 44/-.
Buying and Selling Products under GST
Now with the implementation of GST with increased rate of 12%
Bill to Customer A : 350 + 12% (GST) = 392/-
Bill to Customer B: 350 + 12% (GST) = 392/-
It is same for the both parties.
When customers A sell products @ 442 : 442 + 12% (GST) = 495.04
42/- gst paid from 53.04/- gst he collected from his customer and rest is paid to govt. Here the net profit is 50/-
Tax Paid to govt = 53.04 – 42 = 11.04/-
When Customer Sells Product @ 442 : 442 + 12% (GST) = 495.04
Same steps will be followed like customers A. Under GST both parties will be at the same level and they will have the same impact.
We hope you got some idea about the GST and its impact on the price of the products. To get more information regarding GST and other for other queries of Pharma Franchise business stay connect with the Innovexia Life Sciences.