The new tax regime is coming into force from July 1. Without a doubt this would be seriously impacting the various facets of Indian economy as it would be subsuming the various taxes into a uniform one: GST. Undeniably, this is a drastic shift which will have dramatic repercussions, but to make the transition as smooth as possible the GST Council has decided to not fidget with the existing rates intensely. In addition to this, the Council has resolved to retain the existing list of exempted items under GST. As a result of this, Healthcare sector remains to enjoy its position under the exemption list.
To bring more clarity, healthcare services under the realm of GST include, but aren’t limited to, diagnosis or treatment for illness, injury, abnormality and transportation of the patient to and from the medical establishment. However, any kind of cosmetic and plastic surgery to restore the anatomy and functions of the body will be exempted. Cosmetic treatments falling outside the aforementioned purview will not enjoy exemptions under the new tax regime.
Undoubtedly, India is the largest producer of generics and its pharmaceutical industry is the third largest in the entire world in terms of volume. Under the existing tax regime, life-saving drugs were exempted from the ambit of excise and customs duties and only certain states were levying a tax of 5% on them. However, GST has introduced an entirely different decision and now these drugs will mandatorily be taxed at 5%, while placing the formulations under 12% tax bracket and APIs under 18%.
The Director General of Organisation of Pharmaceutical Producers of India (OPPI), Kanchana TK, said, “The research-based pharmaceutical industry hoped there would be a reduction in the tax incidence on pharmaceutical products. We believe this reduction would have helped in reducing the medicine prices and impacted patients positively.” Kirti Oswal, partner (indirect tax), BSR & Associates said, “In many states VAT on pharma products is on maximum retail price, which is on a single point. Due to this the distribution channel does not pay VAT. Thus, for them paying tax, coupled with three returns a month, is a humongous task.”
The All India Chemists and Distributors Federation (AICDF) is of the opinion that the members would surely feel the nip due to the fact that they will have to pay 7% more under the new tax regime. However, GST Council will surely systemize the taxation system under this sector which was facing the blow of eight different kinds of taxes that used to be imposed at different points throughout the supply chain.