Impact of GST on Medicines in 2021: Get Details on Tax Rates

The introduction of GST (Goods and Services Taxes) has impacted every sector, and the medical sector is no exception. However, the question is whether GST is a boon or bane for the medical industry.

Well, if you are looking for the answer to the question and want to know the impact of GST on medicines, here’s all you need to know.

There are four GST slabs in the pharmaceutical industry, namely Nil, 5% slab, 12% slab, and 18% slab. Mentioned below are the rates and some of the products included in the respective categories:

GST Rates	Products
NIL	Only consists of: Human blood, along with its components Contraceptives
5% GST	Key types of pharmaceutical products: Animal/human vaccines ORS, insulin, cyclosporin Medicaments Diagnostic kits Artificial limbs Walking chairs, crutches, etc. Artificial kidneys Sterilized Dialyzers Coronary stent systems
12% GST	Majority of pharmaceutical preparations and medicines: Glands and organs Heparin and salts Toxins, micro-organisms for medical use Human/animal substance for medical purposes Toothpowder Bandages, gauge and similar items Diabetic food, glucometer, etc. Medical-grade oxygen and other gases
18% GST	A few products only consisting of nicotine usually: Hair care products Nicotine polacrilex gum Material for oral/dental hygiene Dental, medical, veterinary, and surgical furniture

The effects of GST on medicines and the healthcare industry are :

Uniform taxation

The biggest impact of GST on the pharma industry was the simplification of the taxation process. Earlier, the pharmaceutical industry consisted of 8 different types of taxes, but GST has subsumed all these taxes under one tax. This simplification in the taxation process could simplify business processes in the country.

Over time, India has witnessed a surge in the expenditure on healthcare. Therefore, one can witness an increase in revenue from taxes as well.

Moreover, transaction costs are also reduced with the withdrawal of the Central sales tax. Therefore, GST’s implementation is truly a boon for the pharmaceutical industry.

Overall cost reduction

The implementation of GST has resulted in the reduction of the overall cost of technology as earlier, the technical equipment and machinery imported were very costly. The duties imposed on such commodities were not considered a tax credit previously. However, under GST, duties paid are considered as tax credit, thereby reducing the overall costs of technology.

Impact of GST on medicines price

If we note the overall price effect after GST, we observe either very minute or no change in the average prices of medicines. The price remains the same before GST and upon implementing GST.

This impact could be observed with the help of an example of the cost of paracetamol:

Particulars	Pre-GST (Rs.)	Post-GST (Rs.)
Total cost incurred in manufacturing one pack of paracetamol	100	100
Excise Duty i.e 6% on 65% of MRP	3.9	-
VAT 4% on (Total cost+Excise duty)	4.16	-
GST (5%/12%)	-	5/12
Final sale price	108.06	105/112

It is because earlier, VAT was applicable on MRP, i.e. it included excise duty as well. The cascading effect of VAT diminished after GST was introduced as it replaced VAT, and the prices remained the same. Therefore, the total cost pre- and post-implementation of GST is more or less similar.

Positive impact on supply chain

The supply chain of pharmaceutical companies has become more streamlined. Interstate transactions under Central State Taxes constituted 2% which was an additional tax burden. This burden ought to be removed; therefore, depots were maintained in every state and Union Territory.

This streamlined process has helped companies by adopting a hub-and-spoke model that helps pharmaceutical companies reduce warehousing costs and provide an additional benefit of Input Tax Credit.

End to illegal practices

Earlier the distribution channels were left out of the purview of taxation and compliance. The introduction of GST has made compliance with all the norms and return filings a necessity which ultimately helped raise the government’s revenue.

Shop owners usually provided the materials without any bill, which amounted to malpractice. A proper GST tax is now a mandatory practice, and the absence of the same is considered an offense.

More concern for the public

Taxes are decided in different brackets according to the urgency and requirement of the same. The NIL tax bracket has been saved for urgent human requirements for blood and contraceptives. Whereas the 5% bracket is fixed for life-saving drugs, the majority of the medicines fall under the 12% bracket, and the 18% the tax bracket is fixed for the least important commodities.

Therefore, based on needs, demands, and importance, these tax brackets have been quite wisely decided on.

Also Read:

1) Impact of GST on used vehicles
2) Impact of GST on Indian Hospitality Industry
3) Impact of GST on Food items
4) GST rates on Diamond jewellery
5) Sanitary Pads Manufacturers in India

Stay updated with new business ideas & business tips with OkCredit blogs in English, Hindi, Malayalam, Marathi & more!
Download OkCredit now & get rid of your bookkeeping hassles.
OkCredit is 100% Made in India.

FAQs

Q. How can the price of medicines remain almost the same pre- and post-implementation of GST?

Ans. The prices of medicines almost remain the same as earlier, VAT was applicable on 4% of 65% of MRP, which also included excise duty costs. Therefore, the cost was also higher.

However, in the case of GST, 5% is applied flat on the total cost incurred, which does not include any sort of excise duty. Therefore, it makes the overall costs more or less similar.

Q. Is there any tax bracket higher than 18% in the case of medicines?

Ans. At present, in the case of medicines and pharmaceutical companies, 18% GST levied is the highest. No category comes under the 28% tax slab. Therefore, 18% is the highest GST slab in the pharmaceutical industry, including medical furniture, commodities of oral hygiene, and nicotine gum.

Q. What is the impact of GST on the medical tourism sector of the medicines industry?

Ans. There is manifold growth in the medical tourism sector of the pharmaceutical industry. The reason is attributed to the reduction of total costs of insurance, international travel, pharmaceuticals, and quality health care, making medical tourism quite a promising prospect.

Q. Which products are included in the NIL tax bracket of GST in the medical industry?

Ans. It includes two categories of products only, i.e. contraceptive products of all kinds and human blood and its components.

Q. What is the scenario of GST in the import of pharmaceuticals?

Ans. Import of pharmaceuticals are levied with IGST and Basic Customs Duty. BCD is applied as 10%, and IGST is applied as 18%.