GST and Healthcare Industry:

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GST and Healthcare Industry HEALTHY transition
to a new era of Indirect taxation in India
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Healthcare Industry India

• Comprises mainly of manufacture, marketing and
  distribution of drugs and medicines both domestic
  and international.
• In 2008 Indian Pharma business crossed Rs.34000
  crores (08 growth 10 - previous year 13).
• 70 of the growth comes from volume growth, 20
  from New Introductions and 10 from price change.
• In the last decade international markets have
  given the industry a global presence and the
  industry is poised for global leadership.
• In modern era Healthcare industry encompasses
  services related to Research Development,
  Clinical Trials, Product Development etc.
• Governed by a number of statutes both on
  manufacturing and pricing front due to the very
  nature and use of products and their social /
  political / economic impact.
• A very large percentage of total Pharma
  production is in organised sector.

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Indirect Taxes Pharma Industry

• E. D. / CVD on Finished Formulations 4.12 on
  65 of MRP (On manufacture)
• E. D. / CVD on Active Pharma Ingredients (Bulk
  Drugs) 8.24 (On manufacture)
• E. D. on some Nutraceuticals (Food Products)
  8.24 (On manufacture)
• Service Tax 10.30
• Value Added Tax On sale within a state Rate as
  per states schedule
• Formulations Mostly 4. Some states levy tax on
  MRP and first point only taking the product out
  of VAT net.
• Nutraceuticals / Food Products Mostly 12.50

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VAT on Pharmaceuticals Across India

• Tax on MRP (3.85) - Assam, Bihar, Chhattisgarh,
  Jharkhand, Kerala, Karnataka, Orissa, Rajasthan,
  WB. (On first sale).
• Tax on Sales Price (5) Gujarat
• Tax on Sales Price (4.50) UP
• Tax on Sales Price 4 1 Cess (On Tax) Kerala
• Tax on Sales Price (4) Rest of the states
• ______________________________________________
• Entry Tax (No ITC) _at_1 Orissa

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Input Costs / Taxes - Pharmaceuticals

• RM, PM, Consumables, Conversion Cost, Packing
  Cost, Manufacturing Overheads.
• CENTRAL LEVIES Excise Duty, Additional Customs
  Duty, CVD, Surcharge (Credit available subject to
  conditions), Custom Duty (Cost). Service Tax
  (credit available subject to conditions).
• STATE LEVIES VAT (Credit Available if output
  taxable, rest is cost), Entry tax other than for
  local Government (Cost).

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Typical Distribution Pattern - Pharmaceuticals

• Intra-State Mfr. gt Stockist gt Retailer gt Patient
  (ED paid on manufacturing, VAT collected at each
  point in the channel till end consumer, VAT
  calculated on prices incl. ED)
• Inter-state Mfr. gt Inter-state branch trf (no
  tax) to own depot (cf) gt sales to Stockist gt
  sales to Retailer gt sales to Patient (ED paid on
  manufacturing, VAT collected at each point in the
  channel till end consumer in the recipient state,
  VAT calculated on prices incl. ED)
• Export Direct Mfr gt buyer in the destination
  country
• Export Indirect Mfr gt Exporter within India gt
  buyer in the destination country ( No ED / VAT
  burden on exports)
• Services (Domestic / International) like product
  development, research, clinical trials Credit
  of Service Tax available against output tax.

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GST Regime

• Destination / Consumption Based Tax
• Dual GST Option proposed Central GST State GST
• Unique PAN based TIN for registered dealers
• Exempt, Lower and Standard Rate. Special rates
  for some commodities like Precious Metal, Petrol
  / Diesel etc.
• Base for calculation of both C-GST and S-GST will
  be the same.
• Classification of goods to be common between
  Central and State GST.
• No cascading of Central and State GST
• Credit of C-GST against S-GST and vice versa ?
• Tax to be levied from production / import till
  consumption stage with credit of tax paid at the
  previous stage.
• No CST, No declarations (C / F etc)
• Export / SEZ to be zero rated. Supplies to DTA
  from SEZ..?

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GST - Healthcare Industry Expectations from
the new regime

• 40 Weeks left for implementation. Exact
  proposals / GST Module should now be released to
  public for discussion / deliberations amongst all
  stakeholders.
• Uniform State GST Laws across India to facilitate
  smooth operations and compliance.
• Uniform / Clear Classification of Healthcare
  products under both C-GST and S-GST to avoid
  litigation.
• Uniform List of Exempt goods. Credit of tax on
  inputs of exempt products for life saving
  medicines.
• Uniform Rates of tax (both C-GST and S-GST) and
  base for charging tax.
• Credit for all types of GST (on goods services)
  incurred for all business functions to avoid
  cascading effect.

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GST - Healthcare Industry Expectations from
the new regime

• Abolition of all other indirect taxes like
  Entry Tax, Cess, Additional Tax, Octroi etc.
• Position of credit of taxes paid on pre-operative
  activities for establishing manufacturing set-up
  from construction activity till commercial
  production, Research Development activity etc.
• Clarity on transactions like Branch and
  Consignment Transfers in both source and
  destination states, goods returned, price
  variations etc.
• Uniformity on exemption from input taxes for SEZ
  Units across the country. For intra-state
  transactions in some states, though purchases are
  zero rated, purchase tax is levied for inputs
  not related to business.

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GST - Healthcare Industry Expectations from
the new regime

• Simplicity in all compliances, procedures
  Returns, Tax Payments, Scrutiny and Assessments,
  Audits, Appeals - To be system based with
  minimum need to visit commercial tax offices.
• Educating all stakeholders will be essential for
  smooth operations to avoid costs and litigation.
  
• Abolition of all types of statutory forms.
• Abolition of all check post barriers.
• Smooth transition to the new regime is extremely
  important to avoid transitional losses to the
  trade and industry.

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Thank you all and wish you all healthy, happy and
prosperous times ahead.