A mixed prognosis for pharma sector

If the taxation structure for essential medicines changes within the GST regime, prices of drugs could increase significantly

The pharma industry has mixed feelings about the goods and services tax (GST). Industry executives and analysts believe if the rate is up to 12 per cent, it shouldn't affect the health care and pharmaceutical sector. Wockhardt's Habil Khorakiwala, in a conference call on Thursday, said the supply chain will benefit with the elimination of multiple taxation. He feels if the rate is at 12 per cent, drug prices are likely to go up marginally. However, if the taxation structure for essential drugs changes within the GST regime, prices of drugs could increase significantly.

If the sector is touched by GST, the purpose of the National Pharmaceutical Pricing Authority (NPPA) will become redundant. He told Business Standard if medicines are brought under the GST regime, NPPA will not be able to function. "NPPA is trying to bring the prices down and is succeeding in its endeavour. If these drugs come under GST regime, NPPA's efforts will be in vain." EY's Hitesh Sharma's observation is that the removal of the one per cent origin tax on inter-state supplies is the key amendment in the Bill. He says, "This has addressed the concern of cascading effect of GST, which could have flawed the very construct of GST."

Industry would also be looking forward to a beneficial tax treatment for goods manufactured in tax-free zones such as Baddi, etc, a simpler valuation mechanism for levy of GST on stock transfer and zero rating in case of free supplies.