The recently passed Goods and Service Tax (GST) bill has generated a lot of curiosity in the country. While manufacturers are quite optimistic about the new tax law, commoners are not sure how it is going to impact their lives as yet.
The GST promises to simplify and streamline the tax structure in India.
Indian manufactures feel that this is a milestone for Indian economic development and will provide a huge fillip to manufacturing. Until now, a number of indirect taxes increased the cost of finished products and encouraged imports, but this legislation is expected to accelerate prime minister’s 'Make in India' initiative and lower prices for the consumers.
"There might be some anomalies that may increase the cost of finished products in some sectors, but in the long term this would prove beneficial to the industry and consumers, and augur well for our overall economic development," says V. Raja, MD, Philips India.
Utkash Palnitkar, head Pharmaceuticals and Life Sciences at KPMG, said, "The pharmaceutical sector is currently faced with issues of multiple taxes at the central, state and municipal levels: basic and additional customs duties on imports, central excise duty on manufacture, service tax on provision and receipt of services, VAT to name a few."
"The GST can mitigate the cascading effect of taxes and other anomalies of the present indirect tax structure in the country."
The industry buzz is that the pharmaceutical companies may have to review their distribution strategy and re-work their networks.
"There could be a need to move to a hub-and-spoke model with primary and secondary hubs across states, besides overhauling the process of the companies used to select their warehousing network with cities like Chandigarh, Lucknow, Guwahati, and Nagpur emerging as primary hubs in addition to the metros," Palnitkar said.
Although, the new tax legislation is believed to bring down the manufacturing cost, industry leaders are not sure how the benefit will trickle down to the end consumer.
"Most of the medicines are available at the MRP. If the MRP is inclusive of the taxes, how is the end consumer going to benefit from that?" asked Rajiv Nath of Association of Indian Medical Device Industry.
"Because in this case, it will be up to the retailer or the hospital to decide whether to share their profit margin with their customers or not," he added.