Small pharma stores not ready with GST-compliant billing systems, holding stocks

With the roll-out of Goods and Services Tax (GST) just hours away, many mom and pop pharmacy stores say they are still not ready with GST compliant billing systems and are still holding large stock in hand which they may have to sell for a loss.

“We are not yet ready for the mid-night GST rollout,” said Ganesh Jadhav of Ganesh Medical and General Stores, a mom and pop pharmacy store in Nerul, Navi Mumbai.

Jadhav said it will take at least 10 days, to clear his existing stock before he would be able to sell medicines at GST rates.

Another pharmacy retailer who identified himself by his first name Amol who runs New Simran Medical store in Navi Mumbai said he, too, isn't ready for GST rollout by midnight today.Another Tryst With Destiny! How GST Will Change Your Life After July 1

“There is lot of confusion; we don’t know what rates will be applicable to the stock in hand and how it will impact our margins,” said Amol.

Both Jadhav and Amol said they will be open tomorrow despite not being GST ready, as they can’t deny medicines to their customers.

The neighborhood mom-and-pop pharmacy stores dominate the Indian pharmacy retail market, which is pegged at over a trillion rupees annually and growing at 14 percent.

There are over 900,000 pharmacies spread across India mostly run by small entrepreneurs who see pharmacy business as relatively low risk with a decent return on investment. The trade margins for many of the products sold in a pharmacy are low and fixed.

For organized pharmacy retail that accounts anywhere between 5 and 15 percent of the market – GST roll-out isn’t going to be much of a problem.
Organized pharmacy retail chains such as Apollo Pharmacy, MedPlus and Wellness Forever that run on a centralised management information systems said they have aligned their billing systems with GST Network.

The entire pharma retail is, however, is worried about the stock in hand and margin hit they have to take. Despite destocking inventory- industry bodies estimate that the pharma supply chain is stuck with three-month old stocks, worth around Rs 20,000 crore. Retailers are expected to take a cut of Rs 1,000 crore.

“The drugs have been moved from a 5 percent to 12 percent tax bracket,” Surendra Mantena, chief operating officer of MedPlus, the second largest pharmacy retail chain with over 1350 pharmacies throughout India.

“What that will do is our topline is going to decrease by 7 percent and our margins will take a hit by 1.4 percent. The next thing is the stock that we have at hand was bought at 5 percent, whatever we sell tomorrow we pay 12 percent. So, there is 7 percent loss on tax,” Mantena said.

To be sure the government did gave some relief in form of 40 percent input tax credit on stocks lying unsold up to June 30.

“What we are requesting the manufacturers is increase our margin, some manufacturers informed us they will protect our margins,” Mantena said.

The trade body All India Organisation of Chemists and Druggists (AIOCD) says that most pharmacies have invested in software billing systems and that compliance isn’t be much of a problem.

“We will not face much of a problem; I spoke to many wholesalers in Mumbai. They said their IT systems are GST compliant, and will start billing as soon as integration with GSTN takes place,” said AIOCD president JS Shinde told Moneycontrolover the phone.

Shinde said pharma stockists and retailers need not worry as the manufacturers have assured to partly compensate for their loss in margins.