The pharmaceutical industry was hoping the goods and services tax (GST) rate on life-saving drugs would be zero, even as it has been capped at 5 per cent and that of all other formulations at 12 per cent. The rates in the GST regime will be slightly higher than what prevail now.
Kanchana TK, director general of the Organisation of Pharmaceutical Producers of India (OPPI), said: “The research-based pharmaceutical industry hoped there would be a reduction in the tax incidence on pharmaceutical products. We believe this reduction would have helped in reducing the medicine prices and impacted patients positively.”
The tax on nicotine is fixed at 5 per cent, while nicotine gum comes in the 18 per cent slab. Cipla, which markets nicotine gum under the Nicotex brand, declined to comment on how the new tax rate would impact the sales of the product.
Active pharmaceutical ingredients, or raw materials, will be taxed at 18 per cent.
“By and large the tax impact will be neutral on the pharmaceutical industry,” said Hitesh Sharma, leader (life sciences) at consultancy, EY.
More than the tax rate, the bigger worry for the companies is the disruption the new tax regime will bring. While companies have geared up for the launch, many distributors and stockists have not even registered themselves to the GST portal, according to a senior executive of a pharmaceutical company.
“In many states VAT on pharma products is on maximum retail price, which is on a single point. Due to this the distribution channel does not pay VAT. Thus, for them paying tax, coupled with three returns a month, is a humongous task,” said Kirti Oswal, partner (indirect tax), BSR & Associates.
Distributors and stockists are upset at the loss they might have to incur with the increase in the effective tax rate. The effective tax rate on formulations, now 9 per cent, has been increased to 12 per cent, and trader margins have been built into the tax rate. While companies such as Abbott and Cipla have decided to absorb the losses which traders might incur during the transition period, distributors are unhappy.
The All India Chemists and Distributors Federation (AICDF) said its members would have to incur a loss on investment. The organisation said currently the trade channel paid 5 per cent VAT and now it would have to pay an additional 7 per cent but their profit margin would remain the same.
Joydeep Sarkar, secretary, AICDF, says: “Under the GST regime, we will not be able to claim refund on the tax for expired products. The government allows it only for up to six months but in pharmaceutical products, the average shelf life of a product is one year.”
For dealers, around 10 per cent of the products expire annually.
The All India Organisation of Chemists and Druggists (AIOCD) said since the National Pharmaceutical Pricing Authority (NPPA) controlled prices of drugs, companies might not increase the prices.
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Staying in luxury hotels with tariffs above Rs 5,000 will cost you more as the service tax under the new GST regime has been set at 28 per cent. Experts consider this a regressive move, especially at a time when occupancy levels in metros and tier-II cities are on the upswing. On an average, effective tax rate on hotels in Maharashtra are between 19 per cent and 20.5 per cent. This subsumes nine per cent service tax and 10 per cent luxury tax for hotels in general and 10.5 per cent service tax and 10 per cent luxury tax for hotels with banquet facilities.
Availing insurance, banking services, investing in mutual funds and paying mobile bills will get costlier with the GST Council setting a rate of 18 per cent for telecom and financial services. But, while telephone bills will surely rise, analysts are divided over to what extent financial services companies will pass on the increased tax rate to clients. The existing service tax rate, including for telecom and financial services, is 15 per cent, including Swachh Bharat cess and Krishi Kalyan cess. Industry body Cellular Operators Association of India (COAI) feels an 18 per …
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On Thursday, the GST Council approved all eight rules, clearing the ground for the rollout of the Goods & Service Tax (GST). A preliminary reading of these rules reveals three significant changes.
First, the final rules have clarified on the valuation of goods between related parties. Under the new indirect tax regime, transactions between related parties, for example two companies belonging to the same group, will now be valued at 90 per cent of the market value.
“This is a simple method of valuation and provides much-needed clarity to the industry,” said Pratik Jain, national leader-indirect tax, PwC India.
Second, clarity has also been provided on how to arrive at the value of assets repossessed by banks on which the GST rates will be levied. Earlier, it was not clear as to whether GST would apply on the entire sale proceeds of such assets. But the rules have clarified that under GST, banks will now be allowed to deduct five per cent every quarter, or 20 per cent each year from the purchase value of the asset to arrive at the price at which GST is applicable.
“The effective incidence of GST in such cases would reduce, providing relief to banks and financial institutions,” Jain said.
Third, the rules have also clarified on how to deal with cases where input tax credit has been claimed but later reversed due to non-payment to the vendor.
Now, it has been provided that in such cases the credit can be reclaimed on payment to the vendor without prescribing any time limit.
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The Centre and states are likely to each impose a 0.5 per cent tax collected at source on sellers of products on e-commerce websites such as Flipkart and Amazon under the goods and services tax (GST) regime. This proposal would be taken up at the two-day meeting of the GST Council, starting Thursday in Srinagar. The tax will be collected by the e-commerce marketplaces: They will deduct 1 per cent while paying the sellers. E-commerce players had earlier opposed a provision in the GST law to impose a 2 per cent tax — 1 per cent by the Centre and states ..
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Excise collections may take a hit as dealers are refraining from purchasing goods from manufacturers as they are not sure about tax credits and rates under GST, which is slated for July 1 launch.
The GST Council will meet on May 18-19 to decide on the rates, and sources said tax rates of as many as 6,000 products have to be decided.
In view of this uncertainty and also the transitory mechanism for availing of credit on tax paid prior to the GST kick-off, dealers are choosing to wait and watch rather than buy and holding on to inventories.
This state of flux will have a tax bearing on excise collections during April-June, said experts.
PwC National Leader (indirect tax) Pratik Jain said that given the apprehension about the loss of credit in the case of transition stocks, there is an attempt to reduce the inventory level, which is impacting the sales of most consumer products in the current quarter.
“Therefore, excise duty collection this quarter may fall unless the government provides higher percentage of deemed credit (currently proposed at 40 per cent of CGST),” Jain said.
GST will subsume 10 different levies, including excise, service tax and VAT, and will create a unified market for seamless transfer of goods and services.
The GST Council, comprising Union and state finance ministers, has decided on a four-tier tax structure of 5, 12, 18 and 28 per cent. Besides, for demerit and luxury goods, a cess will be levied on top of the peak rate. The cess will be used to compensate the states for revenue loss arising out of GST implementation.
The fitment committee comprising central and state officials has worked out tax rates on various goods and services and the report will be placed before the GST Council at its May 18-19 meeting.
Tax rate closest to the present incidence on a goods or service will be chosen with a view to keeping the shift from the present regime neutral for consumers. The tax rates will be decided in a fashion to keep their impact on inflation as well as revenues to the government near neutral.
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India being a federal nation, the Central Government is empowered by the Constitution to levy duties and taxes on the manufacturing and rendering of services. The government in the states are empowered to levy tax on intrastate sale of goods, in which movement of goods happen within state jurisdictions. When the sale of goods involves movement of goods between different states, the Centre is empowered to levy tax on such sales, and the revenue so collected, will be shared by the Centre and the State.
While the constitution clearly stipulates the powers to the governments at the Centre and the states, the biggest challenge especially for the states is to monitor the movement of goods – within the state and outside the state.
There was rampant evasion of taxes and leakage of revenue to the states. Thus, in order to tackle the tax evasion and misuse of the system, most of the states have multiple check-post along their national highways and borders. These check-posts mainly monitor the movement of goods and ensure that the relevant duties/ taxes have been paid on goods.
A person causing movement of goods has to be equipped with various documents like invoice, challan, road permits, way bill, and so on which need to be produced at the check-post for inspection.
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The Goods and Services Tax (GST) will be levied at several rates ranging from 0 to 28 percent. GST Council has finalised a four-tier GST tax structure of 5 percent, 12 percent, 18 percent and 28 percent, with lower rates for essential items and the highest for luxury and ‘demerit’ goods that would also attract an additional cess.
Service tax will go up from 15 percent to 18 percent.
While details have not been announced, essential items including food, which presently constitute roughly half of the consumer inflation basket, will be taxed at zero rate.
The lowest rate of 5 percent would be for common-use items – usually items of mass consumption.
There would be two standard rates of 12 percent and 18 percent into which the bulk of goods and services would fall. Most commonly used items as well as household items would fall under these two categories.
The highest tax slab will be applicable to ultra-luxuries, demerit and sin goods (like tobacco and aerated drinks). The demerit goods will attract a cess for a period of five years on top of the 28 per cent GST.
The GST will subsume the multitude of cesses currently in place, including the Swachh Bharat Cess and Krishi Kalyan Cess and the Education Cess. Only the Clean Environment Cess is being retained.
The collection from the GST cess as well as that of the clean energy cess would create a revenue pool which would be used for compensating states for any loss of revenue during the first five years of implementation of GST.
The principle for determining the rate on each item will be to levy and collect the GST at the rate slab closest to the current tax incidence on it.
Indicative Tax Slab under GST
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