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GST ON PHARMA SECTOR

P A Francis
Wednesday, July 05, 2017, 08:00 Hrs  [IST]

From July 1, pharmaceutical industry and trade also came under GST, the much publicised new indirect tax regime for goods and services in the country. Both the industry and trade are not happy with this major change in taxation system for obvious reasons. There are thousands of small time operators both in the industry and trade who are not ready to adopt the new system. Of course they all asked for more time from the authorities as the new tax regime is not that simple to adopt and lakhs of small time semi literate traders in rural areas are in a state of confusion. In a sector which is engaged in manufacture and sale of essential commodities like medicines and medical devices, introduction of a new tax regime should not cause shortages of these products for any reason. Some of the industry and trade organizations have already warned the government about such a possibility. The national president of Indian Drug Manufacturers Association had made it clear last week that some sections of the pharma trade are not yet prepared for the GST regime. Many stockists and retail chains, especially those in rural areas, do not even have a GST number in place. There are 8 lakh retail chemists and 20,000 drug distributors engaged in distribution and sales of pharmaceuticals in the country.
 
A general trend in the trade during last couple of months has been to maintain lower stock whereas pharma companies have been reducing their production and sales. The main reason for this move by the trade is the concern over the possible refusal by pharma companies to take back old stocks. In fact, there are reports from some northern states that many traders have already stopped buying medicines from the companies and returning products back to them. Now, the stockists and retailers who are not GST-compliant may not be eligible to stock medicines for some time. This would mean that a shortage of medicines can arise wherever there are a large number of non compliant traders are located. And at least for two months, most traders will be selling medicines at pre GST prices as new stocks will take that much time to arrive in their shelves. Total compliance to GST regime by traders will take time as most of them will have to depend on the services of tax consultants. That is certainly going to push up the cost of running their business also. The move by the Department of Pharmaceuticals to set up a ‘GST Facilitation Cell’ with 3 officials for addressing any issue related to GST in pharmaceutical sector is indeed a welcome step. The Cell is expected to be in constant touch with the major industry and trade bodies to serve as the first contact point for addressing issues relating to pharma sector. One has to wait and see what are the unforeseen issues the sector is going to face when enforcement of all provisions of the GST take place in the coming weeks.

 

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