According to Kautilya in his book ‘Arthashashtra’ the tax system of a country should be “liberal in assessment and ruthless in collection”. The proposed GST regime, if implemented in an empirical way, would create a tax system that is economically efficient and neutral in its application, distributionally attractive, and simple to administer.
The Indian pharmaceutical industry is estimated to be worth US$ 26 billion. The industry is expected to reach US$ 45 billion by 2020 to become the sixth largest globally.
India’s cost of production is significantly lower than that of the US and almost half of that of Europe. It gives a competitive edge to India over others. However, levy of multiple taxes, loss of credit of tax paid, compliance and litigation cost associated with the present tax set up are causing problems to the Pharma Industry.
With GST in anvil, the accumulation of credit on account of inverted tax structure would cease to be an issue for the industry. The subsuming of major Central and State taxes in GST, complete and comprehensive set off of input goods and services and phasing out of Central Sales Tax (CST) would reduce the cost of locally manufactured goods and services. This will further increase the industry’s competitiveness in the international market and give boost to exports.
Another evident impact would be a definite re look at the warehousing strategies followed. GST will decrease transportation cycle time, spur supply chain decisions, pave the way for consolidation of warehouses which could help pharma supply chain reach its highest peak.
Besides positives outcomes, GST would be levied on stock transfer of promotion materials impacting bonus incentive schemes like free samples, expired material return system followed by companies.
Domestic pharmaceutical industry expects to gain from operational efficiency as a result of GST regime, wherein the impact could be neutral if the overall rate is up to 12% with input credit refunds available once `one nation one tax' is implemented across the country.
Authors
Siddharth Surana
Siddharth is an associate member of ICAI. Having worked with clients across diversified industries, few of which include IT/ITES, Pharmaceuticals, Agriculture (seeds) etc., he has gained valuable experience and expertise in the areas of Tax Consulting and appellate representation, FEMA, International taxation and Transfer pricing.
He has hands on experience in assisting Clients on compliance with Corporate Direct and Indirect taxation, advising clients on withholding tax, structuring International transactions including avoidance of exposure to PE, conducting Transfer Pricing studies, handling expatriate taxation for inbound and outbound employees, interpretation and application of Tax treaties and advising clients on matters relating to OECD and UN guidelines on Model Tax Conventions.
His ability to understand and work with complex business models and structures in conjunction with the various laws brings to the team a unique expertise. He also has a certification on IFRS from the Institute of Chartered Accountants of India.
Ketna Kanodia
Ketna Kanodia is a Chartered Accountant and holds a Certificate for specialization in Forex & Treasury management.
She has been associated with KVA right from the start of her career. During this tenure, she has gained significant exposure to the corporate environment of various industries, both domestic and international, through the diversified nature of assignments she has been handling.
Her varied experience extends to the strategic sectors of process, operational & management audits, transaction structuring advisory, financial reporting, auditing & assurance, risk management advisory and corporate compliances. Currently, she is a part of the audit, assurance and consulting division at KVA.
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