GST rates unlikely to impact medicine prices as life saving drugs get marked in in low tax basket

The much awaited announcement on the Goods and Services Tax (GST) tax rates is out. While the Indian pharma gets down to studying the fineprint to get clarifications for their reservations, the quiet on their part indicates that it is in line with their expectations.  Though they would have expected slightly lower rate on the APIs (active pharmaceutical ingredients) - the bulk drugs that go into the making of final pills and tablets - most seem to find them as rates they could live with.

"The rates - 5 per cent for life saving medicines (zero earlier), 12 per cent on formulations and 18 per cent on APIs - are more or less in line with what the industry was expecting but a larger concern for the industry would be how the transition would be made to these new rates. We are hoping that the transition would be smooth and the disruptions minimised," says Kedar Upadhye, CFO, Cipla, a major player in the domestic market. The new rates and how they are implemented would be an area of huge interest for the pharma sector and in turn, his company.

In fact, this view seem on the GST administration seems to run across others comapanies of pharma sector as well. All eyes now seem to be now on GST administration and the infrastructure expected to be ready for the transition. Many for instance, are hoping to get some clarity on the transition day stocks and what would be the view on the stock on the day of transition. More so, if the new rates are to take effect from July, the question is on how ready is the system for the transition.

As far as the rates are concerned, the only concern was on the rate for APIs as the rate on the inputs is higher than on the end product. But then, the argument in favour of the new rate is that the value addition of the end products - the formulations - will be able to handle the higher rate on the APIs. Though some feel, there is need for more clarity here as it may not always work and it would all depend on the API cost as a proportion of the formulation cost. Today for formulations at 12 per cent is more or less with the rates today considering that excise duty plus VAT (value added tax) is also around 9 to 10 per cent. The rate on APIs, is today also more or less at around 18 per cent with the current taxes.