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Industry looking forward to crucial changes in indirect taxes in Budget-2018 to boost growth: Santosh Dalvi
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Nandita Vijay, Bengaluru
January 27 , 2018
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Pharma industry is looking forward to crucial changes in the Budget
2018, especially in the area of indirect taxes, to give a fundamental
boost to the recent sluggish growth trend, said Santosh Dalvi, Partner,
Indirect Tax, KPMG India.
The sector has witnessed good growth in
the last decade due to the momentum gathered by various government
policies. However, the industry mood seems to be changing due to not so
impressive budgets in the recent past and impact of the Goods and
Services Tax (GST).
Therefore the foremost change desirable for
the sector would be to reinstate the concessional customs duty on
selected drugs withdrawn by the government in January 2016. Few drugs
which inter alia formed part of the National List of Essential Medicines
(‘NLEM’) 2015 are subjected to basic customs duty at 10% after the
exemption granted to these drugs was withdrawn. This has directly
impacted the margins of the importer companies as drugs falling under
the NLEM are generally used for public healthcare and hence, are subject
to price control. Given the heavy reliance on imported drugs for public
health, the pharma sector would expect that the concessional customs
duty be reinstated in the Budget, Dalvi told Pharmabiz in an email.
Import
of medical devices attract customs duty at 5%. However, with growing
focus of the government on ensuring end-to-end healthcare set-up, it
would be imperative to exempt import of such devices required for life
saving diseases from customs duty, he added.
Another focus area
of the pharma sector relates to ‘contract research’, which has been on
the rise and showcasing India as a global hub for cost-effective
research activity. However, the service being performance-based, is
taxed at the place where it is actually performed thereby subjecting it
to service tax at 15% and now GST at 18%. This makes the service less
competitive in the global market. In order to boost this industry and
improve cost efficiency, it is expected that such services are treated
as export and not subject to GST, he said.
The sector is also
facing challenge in relation to GST reversal on sales return of expired
and damaged stock. GST on goods returned can be reversed if the goods
are returned latest by September following the end of the financial year
in which the goods were supplied. Generally, in pharma, most of the
products have 3 year expiry and hence, it is possible that near to
expiry or expired stock is returned only after 2 years from the supply.
In such scenario, the GST component cannot be reversed while issuing the
credit note. If the recipient is not eligible to claim input credit,
then such GST is a cost. While the Government had recently clarified
that the return of expired and damaged stock will not be treated as a
supply and will not attract GST, the industry would also expect that
favorable clarity is provided on the reversal of input credit in such
business scenarios, explained Dalvi.
Lastly, refund of input
taxes has remained the top priority as any delay therein results in
blockage of working capital. Unfortunately, the situation was no better
with GST. The government needs to speed up the entire refund process so
as to reduce the strain on cash flows of the exporters.
This
Budget is not expected to tweak GST rates. But if crucial changes are
implemented, it would be a win-win situation for both the government and
industry, said Dalvi.
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