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India’s Goods and Services Tax (GST): What does it mean for pharma?

GST to rollout tomorrow: Copyright: <a href=''>cooldesign / 123RF Stock Photo</a>
India’s new Goods and Services Tax (GST) is sparking concerns about its potential impact on healthcare.

India’s long-awaited and divisive Goods and Services Tax (GST) will soon take effect. What effect will it have on healthcare?

The GST has effectively more than thirty years in the making. A large-scale stab at tax reform, it seeks to impose a levy on all goods and services across India at the national level. The GST has been ratified by all but five states to date and is expected to come into force on July 1. The pharmaceutical industry is concerned about the potential implications of GST for healthcare.

Drug shortages are “likely”

Drug shortages are “likely” as a result of GST. Many drug stockists are keeping supplies of medicines to a minimum in anticipation of GST. The Times of India notes “medicine inventory in retail stores has dropped 50 percent.” This is because drugstores are keeping only twenty days’ worth of stock, as opposed to the usual forty days.

Some drug suppliers are even returning parts of their stocks to pharma companies, in an effort to ward off losses. In one example, chemists in Chandigarhh are refusing to buy fresh stocks of medicines, fearing their profits will take a hit as they did when value-added tax (VAT) was introduced in 2005. As a result, patients are alarmed that, come July 1, they will be facing shortages of medicines. In Bengaluru, chemists’ chain Family Pharma sent a SMS telling customers to “expect a drug shortage in July.”

Many drug stockists are keeping supplies of medicines to a minimum, fearing the impact of GST on their profits

Traders can expect losses of around 1.2 percent. according to the ToI. However, Suresh Gupta – the Honorary Secretary of of the All-India Organisation of Chemists and Druggists (AIOCD) – says “overall we’ll incur losses of up to 8 percent.” Manufacturers, meanwhile, can expect a 2.5 percent loss on their existing stock, according to the Indian Pharmaceutical Association.

“No clear communication”

Much of the uncertainty stems from what the International Business Times calls “no clear communication…a major concern for the drug merchants is whether they have to pay 12 per cent tax for medicines, even for those bought earlier. If they are made to pay the raised tax for the old stock, then how much profit will they make?

Drug companies, meanwhile, are trying to assure consumers that there is nothing to worry about. Pharma experts cited by the Business Standard predict that shortages will be limited to only a few brands, with essential medicines likely to go unaffected.

Potential benefits from GST for patients?

Furthermore, despite the present inconveniences to patients, there is also the potential that the GST will benefit them in the long run.

A number of medications – for conditions ranging from rare diseases to HIV to cancer – are expected to become cheaper, potentially meaning that many more Indians can receive treatment at affordable costs. This is thanks to the intervention of the National Pharmaceutical Pricing Authority (NPPA), which sought to mollify concerned drug companies, suppliers and patients by issuing a list of 761 Schedule I medications. Most of these have seen their prices decrease.

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