Month: June 2017

Indian Pharmaceutical sector is currently third largest in the world in terms of volume. As population grows, the need for healthcare services increases. This has led to more revenues from pharmaceutical sector. In current taxation structure, 8 different types of taxes are imposed on the pharmaceutical sector. Once GST gets into action, these taxes would get subsumed. GST is a unified tax systems across the nation which will bring ease in doing business and minimize the cascading effect of various taxes.

Positive impact of GST on pharmaceutical sector:

The major benefit for pharmaceutical sector is GST will rationalize their supply chain management and reduce the transaction costs due to withdrawal of CST. Inter-state transactions will become tax neutral, replacing traditional C&F distribution model. An efficient supply chain will result in reduction in logistics cost, inventory cost and thus the overall cost of the products.
The manufacturing cost and the overall cost of technology will drastically reduce too. Presently, the machinery and equipment needed for production are imported and thus, are very costly. The duty levied on these machinery and equipment is not allowed as a tax credit under the current tax system. While under GST, duty charged on such import would be allowed as a credit.
GST will also help our Medical Tourism industry in an indirect way. India currently enjoys a competitive advantage over developed countries as the cost of healthcare in India is about 30-40 percent of the similar medical treatment and procedures in those countries. With GST, the cost of healthcare package including insurance, pharmaceuticals, and international travel is expected to reduce which would culminate into better prospects of medical tourism in the country.
Currently, there exists an inverted duty structure in this sector. It adversely affects the domestic manufacturers as this means the raw materials are costlier in terms of duty than finished products. Under GST, either disposal of this structure or bringing in a refund of the accrued credit is proposed.  This would prove to be a huge benefit for pharmaceutical sector.
Apart from drugs and medicines, India is also foremost in alternative medicine practices like Ayurveda, Yoga, Unani, Siddha, Homeopathy and Acupuncture which are popular among foreigners. It is anticipated that GST would also encourage this sector. This will significantly contribute towards the growth of medical tourism in the country.

Negative impact of GST on pharmaceutical sector:

GST will also have some negative effects on pharmaceutical sector. Many medicines which are taxed currently at 5% would attract 12% tax once GST comes into effect. There is still an ambiguity in the prices of life-saving drugs and healthcare services. Presently, these are exempted from the Excise and Customs Duties, but there is still a doubt about this after GST. Under GST, free samples, discount offers, etc. will also attract tax. So, in this sector too, the bonus schemes, free drug samples and the inter-state movement of the expired products or the stock transfers may attract tax.
Conclusively, the impact of GST on pharmaceutical sector is still not certain. But it can be assumed that GST will bring a win-win situation for both – customers and businesses. Reduction in complexities and decrease in overall costs are major advantages for pharmaceutical sector. Both – pharmaceutical sector and medical tourism – are on the way of expanded profitability and promising development.
In case you are still in dilemma about impact of GST on your business and how to be GST ready, feel free to reach the GST experts at Intech.

Retail sector is one of the key pillars for Indian economy and it accounts for around 10% of GDP. GST will usher in wide changes in various industries and sectors and Retail industry is not an exception.
While GST implementation is now just few days away, let’s see what will be the impact of GST on Indian Retail Industry and which changes will this industry need to imbibe to become GST ready.

Less Taxes

In the current tax scenario, retailers are entitled to about 30% indirect taxes such as VAT, CST, excise duty, service tax on warehousing, Octroi and many more. GST will lessen the retailers’ tax burden as it will streamline everything into single tax. The cascading of taxes will be done away with and a simplified tax structure will be come into effect.

Free flow of goods across the nation

After GST implementation, state borders will be unconnected from taxation and documentation point of view. This will result into free flow of goods across the nation without any kind of barriers. GST will reduce the complexity for retailers and make the distribution channel efficient.

Streamlined supply chain

GST will affect the warehouse networks of retail businesses. Retail businesses will no longer require warehouses in every state they operate due to abolition of CST under GST law. Logistics will become efficient too as state border check posts will go irrelevant. Due to decrease in long queues and wait time and free-flowing of goods across the nation, overall lead time of retail businesses will also improve.

Gifts, free samples also taxable

GST law is based on supply of goods rather than manufacturing or sales. Under GST, any supply without consideration will attract tax. Retail sector comes up with many offers like buy one get one free or some freebies on larger goods, every now and then. Once GST comes into action, tax will be levied on such gifts too. This clause will affect promotional activities of retail sector as under current taxation structure, such goods are tax-free.

Changes in decision making

From supply chain to distribution to promotions, every strategy of retail industry will be affected by GST. Retailers will have to re-think these strategies and re-model their network. Retailers may need to revamp the pricing policy of their suppliers in view of enhanced credits that may be available to suppliers in GST regime. Making necessary changes will make it easy for them to comply with GST.

Growth of Retail Market

GST will unify the markets as there won’t be state boundaries to hinder their business. GST will streamline their intra-state as well as inter-state transactions. Retailers can expand their business beyond one state with ease due to one-time registration of their business. This will also contribute towards the growth of the retail market and help boost the economy of the country.

Overall impact of GST on retail sector

Conclusively, the impact of GST on retail sector is going to be positive from both taxation and operations point of view. Retail businesses will flourish more, thus contributing to overall growth of Indian economy. GST will depose total indirect taxes, upsurge supply chain efficiency and facilitate seamless input tax credit. The end price for consumers will also reduce because of GST. Except some clauses, GST will benefit retail sector in a big way.
In case you are still in dilemma about impact of GST on your business and how to be GST ready, feel free to reach the GST experts at Intech.

The manufacturing sector is a driving force for any country. India has been called an agricultural land and making manufacturing the main driver of economy seems far-fetched. India’s complex tax structure can partly be blamed for the stagnant growth of this industry. As per the sources, the manufacturing industry in India has been close to stagnant for the last two decades but its share in GDP is increaing. The impact of GST on manufacturing industry is going to be huge and in addition, could lead to a paradigm shift in developing this sector.
GST will help businesses to realign bottlenecks such as production costs, logistics and supply chain, operations, financials, compliance, etc. Though there are uncertainties in the implementation process of GST, we can figure out the high-level effects of GST on manufacturing sector.

Reduced Cost of Production

Cost of production is expected to be reduced with the reduction in tax cascading by GST in India. Also, you can remove non-availability of tax credit of central/union taxes over state taxes and vice versa by allowing unrestrictive tax credit under GST.

Distribution model restructuring

Under the current tax structure, businesses are operating on state warehouse model to avoid the Central Sales Tax. In the GST regime organizations can operate on the single warehouse system. Input tax credit on the interstate transfer of goods would be available, reducing the cost of the product and making it cost competitive.

Increased compliance requirements

GST is going to be much more automated and will demand stricter compliance to the law. Though it might seem difficult for businesses to cope up with the new law, this increased compliance needs will reduce the loopholes in the tax framework.

Hassle free Supply of Goods

The checkpoints at the state border are tasked with material inspection and location-based tax compliance. This hinders transportation to a great extent leading to unproductive production and increased logistic time and transit hours. The GST law, a destination based tax, will smoothen the transits, reduce compliance scrutiny and make the flow of goods – both interstate and intrastate – efficient.

Free Supplies

In the current tax system, free supplies are not taxed under VAT. While GST law states that supply of goods between persons without consideration is deemed to be a “supply” and thus will be taxed. Similarly, free samples may also be taxed under GST, leading to an overall increase in costs.

Area based Exemptions

Manufacturing units are given some exemptions based on their unit location in specified backward areas, capital investments, etc. Under GST, there is no such clarification regarding this exemption. Organizations can make a representation to Government for appropriate compensation, if any.
Notwithstanding few glitches, GST law combined with “Make in India” initiative will have a positive impact on manufacturing industry of India.