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GST impact : Key issues of GST law relevant to pharma industry

A draft model GST law was released on 14th June, 2016. According to the new GST regime, indirect taxes result in a simple tax imposition for the pharmaceutical industry. Pharma industry addresses the current inverted tax structure in GST and also represents the low GST rate for their products. GST stands for goods and services tax. It shows impact on the prices, working capital, contracts of customers and vendors, ERP systems, and internal control and accounting. Another influence of GST law on the pharma companies is the opportunity to monitor the supply chain and move to it depending on business parameters. GST shows its impact on all the aspects of the business.

So, Indian pharma franchise industry attempts to properly analyze the intricacies of the draft law and its influence on their business. It is essential to confirm that representations in time are sent to the government to understand important implementation necessities in the light of preparation to convert from the current indirect tax management to GST management.

Important rules of GST law that imply on pharma industry


In case of inverted tax structure refund is done

It is the opinion of the pharma industry to address the inverted tax structure in GST. GST law says that it will refund the accumulated credit due to inverted tax structure.

Input Tax credit

Under GST, restriction on input tax credit continues. If there is a mismatch between the outside supplies by the vendors with the inward supplies uploaded by the recipient and if the mismatch is not rectified by the vendor, the recipient is liable to pay the GST along with interest. This provision allows the liability for non-compliance on the recipients or pharma franchise in India against the vendors. If the recipient does not adjust the input tax credit, the supplier has to pay the tax and interest.

Exemptions in the excise legislation and state industrial policy

It was stated in GST previously that area based exemptions under excise legislation and incentives under state industrial policies must be shown as tax refund mechanism. But, as per the model GST law transition provisions do not provide for the treatment of such exemptions/ incentives. The subsidies included in the transaction value significantly influence the benefits available to the industry.

Transition provisions for imported groups

The transition provision offers that the credit balances that were admitted under the present regime is carried further under GST. Countervailing duty is not admitted for the stocks of imported finished goods of pharma marketing and in case of goods obtained from contract manufacturers under the current regime. Under the GST regime, such stocks will suffer from double taxation.

Tax-ability and valuation of stock transfers

Transfer of stocks outside the state is subjected to GST. GST framework intends to levy tax on the inter-state stock transfers and not intra-state stock transfers.

Taxability of free supplies

Supply of the promotion materials attracts GST and their valuation will be done as per the GST valuation rules. Under the present conditions, free supplies do not have VAT. So, promotion expenses of pharma companies increase under GST regime.

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