Impact of GST on Manufacturing
The Manufacturing sector contributes nearly 16% revenue to the overall GDP. GST regime in India is a support given to the initiative taken by the government of India. It is expected that India will be the fifth largest manufacturing country by the end of 2020. After reviewing the tremendous growth potential and expected high GDP in this sector, the government came up with “Make in India” campaign.
The final prices of the products reduce by 10-12% after the change in the rate of indirect taxes from 30% to 18% approx. We can expect an increase in profits by 20%. Earlier there were taxes on manufacturing, sale and provision of sale which is now been replaced by tax on supply.
Production cost reduces with the incorporation of Entry Tax – Entry tax for inter-state transfers. The key reason for reduction in cost of goods and services is the same. Earlier the supplier passed on the additional cost to the consumer leading in increase in selling price. Now the situation is different after GST inclusion.
Simplified Registration process – GST has simplified the plant registration process by allowing single registration for all manufacturing entities within the same state. Currently different state-entities require separate registrations under GST .
Cash flows improved – Under the new tax laws, manufacturers can claim input tax credit on input goods, which is a positive sign for cash flow.
Supply chain restructuring – Businesses are required to realign their supply chains focusing on increasing efficiencies under a single tax regime.
Simplified valuations – With GST law in place, valuation is based on transaction making the tax calculations much simpler than before.
Impact of GST on Pharma sector
Our Pharmaceutical industry is the third largest producer by manufacturing 20% of all generics drugs used in the world. We are the prime supplier with 80%of all AIDS drugs produced in India when it comes to supplying the volume. Around 5% of the country’s GDP is dependent on the healthcare sector and we have seen an enormous development in the past few years in this industry.
The growth expectations are huge in terms of revenue in near future. A big step taken by our government in this regard is giving relief to the pharmaceutical manufacturers by introducing excise-free manufacturing zones.
Healthcare Industry is from where we get the maximum revenue and employment. Increase in expenses directly affects the revenue from taxes. Earlier there were 8 different types of taxes used to be imposed on the pharmacy sector but now there is only one single tax. Things have become more easy in terms of doing business. GST has improved the operational efficiency by rationalizing supply chain.
Under GST regime, formulations are charged at 12% while the average rate was 9% earlier. In most of the states, the VAT on the pharmaceutical products is charged on the maximum retail price and is charged at a single point. Therefore, the distribution channel does not pay any tax or file tax returns.
Almost all the drugs which were previously charged tax around 4% now comes under the 5% tax bracket . Those were used to cure malaria, HIV-AIDS, tuberculosis, and diabetes. Cipla is the only brand in India which produces nicotine gums. They will be little adversely affected as Nicotine polacrilex gum is the only pharmaceutical product which is charged at the fixed rate of 18%.
With the implementation of GST, there is a reduction in the overall transaction costs which has lower down the manufacturing cost. There is also a reduction in the overall cost of technology. Earlier we imported the technical equipments and machinery for healthcare sector which were very costly as heavy duty was imposed on it. The scenario has changed now as the duty charged on the import of healthcare equipments is allowed as a credit. As a result, the healthcare facilities have become cheaper making the customer benefited out of it. We are quite sure of the fact that with the passage of time, the healthcare facility will become more affordable to the public.