We all remember how India provided large vaccines to other nations, intending to support their vaccination drives. It was only possible as India occupies a dominant position in the global pharmaceutical industry. Given below is the synopsis for the same:-
- The pharmaceutical industry contributes to around 5% of India's GDP
- India is the largest producer of generic drugs in the world
- Over 50% of global vaccines are being supplied from India
- Ranking 3rd in overall production in terms of volume
The few significant reasons India has achieved this are the low cost of raw material, labour, and increased assistance provided by the Government. While we all may be familiar with the above achievements, it is also worthwhile to analyse the impact of GST on the pharmaceutical industry.
We, through this post, extensively examine the impact of GST on the pharmaceutical industry and more.
The latest GST rates on medicines and other pharmaceutical materials
Before we get into the impact of GST on the pharmaceutical industry, it is crucial to be aware of the GST rates applicable to various medicines and other pharmaceutical materials. There are 4 GST rates possible- nil, 5%, 12%, and 18% and for ease of understanding, we have organised them accordingly (not exhaustive list):-
1. Impact of GST in the hands of patients
If you visit a medical practitioner or a licensed medical clinic to avail of medical services, there will be no impact of GST on you as a patient. Further, all the medicines and supplies used for treatment will attract a nil GST rate. Thus, it ensures that the cost of medical treatment does not become a burden to the average person. However, GST applies to the sale of medicines at a pharmacy(refer to the above table for rates). Overall, this leads to a positive impact of GST on the pharmaceutical industry.
2. Impact of GST in the hands of pharmaceutical companies
Under the old regime, a pharmaceutical product would be liable to around eight different taxes, varying from central level to state-level taxes. It inadvertently led to cascading taxes and increased costs of operating for pharmaceutical companies. In the present GST regime, the impact of GST on the pharmaceutical industry has been lowered. There can be only 1 GST rate applicable. It significantly improves the ease of compliance and profitability of pharmaceutical companies. It further empowers pharmaceutical companies to prioritise maximising production and research capabilities.
3. Impact of GST in medical tourism
In terms of the number of tourists visiting India for medical tourism, India ranks 6th. The primary reason for this achievement is the relatively low cost of medicine and high quality of treatment. Under the previous regime, there was a multitude of taxes and low ease of doing business. Post-implementation of GST, we have witnessed a significant spike in medical tourism. We can attribute this to the low impact of GST on the pharmaceutical industry and the low cost of medicines in India.
4. Impact of GST on Ayurvedic and homoeopathic medicines
Regarding the above table, on Ayurvedic medicines, GST applicable is 12%, and GST is 5% for homoeopathic medicines. Despite India being the land of Ayurveda, the Government taxes Ayurvedic medication at 12%. It can adversely affect people through the high cost of Ayurvedic medicines. A large part of the population still depends on Ayurvedic medication for relief.
The consensus among experts in this field is that the impact of GST on the pharmaceutical industry must be kept low. It is true in India to a large extent. That being said, medicines like- insulin, oral rehydration salts, and diagnostic kits for detecting hepatitis are life-saving drugs—currently, these fall under the ambit of 5% GST. As a result, there is an obstructive impact of GST on the pharmaceutical industry and patients.
India globally occupies a commanding position in the pharmaceutical industry. During the current pandemic, the Government has signalled its intent to strengthen India's position further. The introduction of GST has had a positive impact on the pharmaceutical industry. One of the substantial steps taken by the Government includes permitting FDI in the industry. It will significantly ramp up India's production capacity and research capabilities.
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Q. Will, I have to pay GST on medicines?
Ans. If you visit a hospital to provide medical services, there will be no GST charged on your treatment. Further, there will be no GST on the medicines used for your treatment as well. However, purchasing medicines from pharmacies will attract GST(refer to the GST rates table for more details).
Q. Will GST increase my medical expenses?
Ans. It is improbable that GST will increase your medical expenditure. Under the GST regime, medicines and other raw materials are taxed only once, unlike the previous tax system.
Q. On what amount is GST on medicines calculated?
Ans. Calculation of GST on medicines is on the transaction value. Transaction value is the price paid for the supply of medication between a buyer and a seller. Therefore, it should also be an arm-length transaction.