Goods and service tax (GST), to be rolled-out from July 1 this year, is expected to help bring in better efficiencies in the pharmaceutical industry’s supply chain management and reduce the cost of manufacturing pharmac products. A few industry players and service providers share their views on the impact of GST and getting ready for its roll-out
‘GST will act as a bridge to create a seamless connection between manufacturers, distributors, regulators and customers’
GST will have a positive impact on the pharmaceutical industry. It will lead to an increase in compliance and thereby enhanced transparency and better supply chain management which will not only be beneficial for the pharma industry but also for all the intermediaries in supply chain management and the customers.
Enhanced transparency in pharma distribution
There may be issues during the initial phase of implementation of GST, the reason being in most of the states, medicines are currently being charged with VAT on MRP, i.e., single point taxation. It means the intermediaries involved in the distribution of medicines are not required to pay any VAT. In the current regime, maximum of intermediaries are not required to take any registration or pay VAT or file returns. But in the GST arena, there will be no concept of taxation on MRP. Rather, all the intermediaries will be required to take GST registration, pay monthly taxes and file three returns per month and in total, 37 returns annually. It will enhance compliance levels across the supply chain management by bringing in enhanced transparency to the system with complete tracking of movement of the product. It will be beneficial for all in the longer term. The country will have a major relief from the threat of fake or counterfeit medicines. We believe that GST will act as a bridge to create a seamless connection between the manufacturers, distributors, regulators and customers.
Innovative business models will come up
The pharma distribution system will undergo a major transformation. There will be no incentive for pharma companies to keep multiple warehouses across the country. The movement of goods from one state to the other will not attract any differential taxation and the pharma companies will rework on their distribution strategies. Eventually, it will result in the application of newer technologies in the supply chain management domain with better inventory planning and in turn, result in huge savings in the warehousing and logistics cost. We may see the emergence of innovative business models in near future in the pharma supply chain management domain.
Shortage of medicines
GST on most medicines have been kept at five per cent or 12 per cent and there will be no major impact on the price variation at all. However, due to concerns regarding the input tax credit of 40 per cent (allowed under the GST transition regime), realignment of production strategy by pharma companies due to changes in tax rates and other factors, there are fears related to medicine shortages during the transition phase. Recognising this threat and also our responsibility, we at SastaSundar have decided to rework on our procurement strategy so that during this transition phase, we can ensure the consistent availability of medicines.
Regarding the preparedness for GST at Sastasundar, we have an efficient supply chain management model empowered with technology. We have already redesigned our system in compliance with GST and tested it as well. For a majority of the intermediaries in the pharma distribution, the GST regime will be a kind of transformation for their business models with enhanced compliance load but with the adoption of readily available technology, we believe that it can be managed. We understand that like us, all those associated with the supply chain management are also geared up for GST.
GST is one of the biggest reforms in the country and we believe that the government’s mission to ensure affordable healthcare to all Indians will get a major boost by the GST regime.
– Ravi Kant Sharma, Founder and CEO, SastaSundar
‘We need to embrace the new reality and move away from banal considerations’
GST is finally upon us. Enough has been spoken, and comprehensively so, about GST’s form, structure, benefits and pitfalls by consultants, specialists, analysts and pundits. However, the unanimous sentiment is that GST is an absolute game changer, not just for the pharma industry but for the country and its commerce as a whole. The undisputed consensus is that this is a move in the right direction for realising the vision of better governance.
As responsible citizens and business leaders, it is not only expected of us but it’s also our responsibility to be active enablers for smooth implementation of the new GST reforms. Digitisation, automation and the resultant transparency is going to be a way of life rather than mere change management. Therefore, we need to embrace the new reality and move away from banal considerations such as impact on profit, deployment of additional resources for book-keeping, document filing compliance. In fact, the focus should be on reshaping the organisation to become more compliant, efficient and, as a result, more scalable.
I often meet leaders of small, medium and large businesses who partially owing to ‘change inertia’ and fear of the unknown and partially due to hearsay and incomplete information, indiscriminately criticise or are negative about the developments and reforms pertaining to GST. While it’s true that these reforms have been designed by administrators and bureaucrats and not by businessmen, hence the flavour is more of compliance and regulation and not business friendliness, however, the bottom-line remains that legal compliance is the fundamental pre-requisite and should not be slotted as aspirational conformance. ‘What is inevitable, needs to be embraced’.
With the roll-out of GST, two things will happen for sure:
a) The manner in which business will be conducted will witness a paradigm shift from how it was conducted in the past.
b) Boys will be separated from men
Confusion with regards to GST taxation for online businesses will continue to prevail. The industry itself has given birth to myriad business models and it’s imperative that clear distinctions are made as to what constitutes online commerce. This in turn will lead to better clarity with respect to GST taxation for online businesses.
Personally, I would like to believe that GST is a procedural, simple, tax-passing mechanism which is purely between businesses; the customer is merely the consumer of tax.
– Gulshan Bakhtiani, Director, Wellness Forever, Wellness
‘GST is going to promote fair play in business’
In the dusty lanes and by-lanes of each and every town in the Indian subcontinent, one trade which is visible is a medical store or a pharmacy. Such is the reach of over seven lakh pharmacies in India. The pharmacist is often the most trusted trader and is the distributor of good advice along with the medicines required by the customer. The brand driven by the Indian formulation market and the low brand loyalty of the prescriber has put a large amount of pressure on the trader. Compliance to the laws of the land in terms of tax returns and documentation is often the loser. The success of the GST programme is going to be more in its execution and implementation by all the stakeholders. The GST programme will bring in clarity in the documentation and also drive total compliance. Traders will be forced to select suppliers who are not only GST compliant but also financially stable. For eg: A trader cannot claim input credit under GST unless and until the supplier has uploaded his GSTR-1.
GST is also going to promote fair play in business. Section (2) of Section 16 talks of additional interest payable to the government if the input tax is not paid for more than 180 days. GST’s approach is bringing in the much-needed transparency and holistic approach to plug the loop holes in tax structure compliance. Traders who buy from non-complaint suppliers under Section 9(4) have to pay the entire GST.
From a solution perspective, we feel that the adoption of strong POS software becomes a boon and in many instances a necessity. Adoption would help in correct and effective documentation. The GST for the pharma industry has multiple tax slabs and given the plethora of brands, an automated solution is essential to file in the returns required by the new GST laws.
C Square with its large installed base of solutions in the pharma retail space have GST ready versions of our products which will help the retailer become GST compliant in an easy adoption curve.
Automated purchases and auto ordering and other tools present in our solutions will help pharma retailers become a model citizen. Sajith T, Technical Director, C Square, has built a workflow into the solutions which will reduce human intervention in the filing of the various returns. He says that “Automation is the key to becoming an organised trader and unless you are organised, GST adoption is going to difficult and arduous.”
– Sajith Thatalath, Director and CEO, C-Square Info Solutions
– Sripal Bachawat, Director, C-Square Info Solutions
‘There is teething problems that need to be solved related to implementation’
The current indirect tax regime in India provides for a complex tax environment due to multiplicity of taxes, tax cascading and elaborate compliance obligations. Under the proposed GST regime, various indirect taxes would be subsumed (except for few taxes such as stamp duty), and hence it is expected that it would result in a simpler tax regime, especially for industries like the pharma industry. The pharma industry has been representing to address the present inverted tax structure in GST and also for a lower GST rate for pharma products. GST would have an impact on the pricing, working capital, contracts with vendors and customers, ERP systems, processes, internal control and accounting. Another important impact of GST on pharma companies would be the opportunity to review the supply chain and move to a supply chain based on business parameters. Hence, GST would impact every aspect of the business. There has been significant progress on the GST front recently. With the release of the draft model GST Law on 14 June 2016, a major milestone has been achieved, and we have certainly moved a step closer to GST. It is expected that the government would push for passage of the GST Constitution Amendment Bill during the upcoming Monsoon Session. India finally seems to be on the cusp of implementing this much awaited tax regime. Our stand to be simple – we think it’s great. This will benefit the industry and everyone. However, currently there is teething problems that need to be solved related to implementation. There may be a temporary shortage of medicines, but we are doing our best to ensure that the customer is not taking the hit. We’ve already alerted our customers about the possible shortage and send across messages requesting them to stock up their medicines well in advance by providing a valid prescription for the same. We see long-term benefits will outweigh certain current problems by a distance. These mainly include interstate transport, availability in rural India, hassle-free returns and doctor’s ability to prescribe treatment therapies without thinking about availability in a new state or city.
– Dr Dhaval Shah, Co- Founder, PharmEasy