GST's impact on pharma sector: Negative or positive?

In a special series "Hello GST", CNBC-TV18's Menaka Doshi analyses the benefits of Goods and Services Tax (GST) for different industries. Today's sectoral pick is pharma. Speaking to CNBC-TV18, Pratik Shah, Partner and Head, Indirect Tax Practice, SKP, says GST will impact area-based exemptions and other central or state incentives and hence, many memorandum of understanding (MoUs) will need to be re-negotiated.While medicines are currently taxed five percent, implementation of GST would increase taxation to 12 percent (as propsed) leading to price rise for end-consumers, he says. In addition, the bill will impact free-drug samples, bonus schemes and expired material return system and the companies will need to re-think on incentives, Shah adds.Talking about the positives, Shah says central tax will be subsumed under GST and inter- state transactions between two dealers will become tax neutral. Hence, traditional cost and freight (C&F) distribution model will be replaced by supply chain efficiencies. Not just this, many pharma companies operate on ‘trader of goods’ model and are ineligible to set-off service tax paid. However, under GST service tax, credits will reduce cost of goods sold.