The pharmaceutical and medtech industries are worried about the impending Goods and Services Tax (GST) reforms as they expect the step to impact operating costs and working capital, straining their financial health.
Rajiv Nath, forum coordinator, The Association of India Medical Device Industry (AiMeD) said for equipment, electronics, reagents, and implants, reducing GST to 5% would enhance affordability and market reach. However, applying a 5% rate to low-margin consumables like syringes, catheters, and IV sets would worsen the invested duty structure, increasing costs for Indian manufacturers and making imports cheaper.
“Retaining 12% GST for most consumables while allowing 5% for high-value equipment is the most balanced approach,” he said.
On the other hand, “If the GST on APIs (currently at 18%) is not reduced, it will create a situation where MSME manufacturers end up paying a higher tax on raw materials than the tax levied on finished medicines. This will lead to an inverted duty structure, resulting in heavy accumulation of Input Tax Credit (ITC) and blockage of funds, which directly affects liquidity and business growth of MSMEs in the pharma sector,” said an expert.
Lobby group the Federation of Pharma Entrepreneurs (FOPE) has written to the Prime Ministers’ Officer, finance minister, and the health minister to seek reduction in the GST rate on APIs and raw materials to 5%, aligning it with the proposed GST rate of 5% on finished medicines.
“Maintain a consistent 5% GST rate on key Starting Materials (KSMs) and all essential pharmaceutical inputs including packaging materials and services like job work charges, contract labour, analystical testing charges etc. to avoid the inverted tax structure ,” FOPE said in its letter, a copy of which was seen by ET. “A uniform, lower GST on pharmaceutical ingredients and finished products will help in reducing the cost of medicines, strengthen Indian pharmaceutical manufacturing, and prevent unnecessary financial and compliance challenges for the industry,” said Harish Jain president, FOPE.
Another industry expert said MSMEs already operate with tight cash cycles. Paying 18% GST on APIs and realising only 5% on finished goods leads to continuous ITC accumulation. “This locks funds that could otherwise be used for business expansion, R&D, or exports, directly slowing down MSME growth,” the person said.
Source: The Economic Times
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