Proposed 12% GST on APIs not to benefit Bulk Drug Manufacturers

GST on APIs / Bulk drugs

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Tax
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Last Updated on September 19, 2021 by The Health Master

The proposed 12% Goods & Services Tax (GST) on active pharmaceutical ingredients (APIs) will not benefit bulk drug manufacturers since the raw material that goes into the API is still levied at 18%, say manufacturers. While a section of the industry has welcomed the reduction, another section of the industry feels it is inadequate saying there is no real benefit from the reduction.

In the wake of the China and India API imbroglio for APIs that began during the Covid-19 outbreak in March last year, efforts to propel indigenous manufacture began with the imposition of customs duty of 10-15 per cent by the Union government to prevent imports. 

This was followed with the production linked incentive (PLI) scheme to accelerate domestic manufacture of key starting materials (KSMs) where 53 drugs were identified for which India was heavily dependent on imports from China and other countries. In order to give a further impetus to API manufacturers in the country, the GST Council brought down the levy by 6 per cent from 18 to 12 per cent.

According to Anjan K Roy, managing director, RL Fine Chem, the reduction of GST to 12 per cent from 18 per cent will help the Industry. In fact, this was much-needed going by our reliance on China for APIs which was stalled. The API industry also went through a phase of exorbitant price escalation. Now this GST recommendation to lower the levy is expected to give the industry some relief.

However, Manoj Palrecha, general secretary Karnataka Drugs and Pharmaceutical Manufacturers Association and managing director Lake Chemicals begs to differ.

Stating that this reduction may not be good for the API industry, Palrecha felt there is a need for a similar deduction in the GST levy for intermediates which continues to be at 18 per cent. Otherwise it would only complicate the issue as the working capital allocated for the raw materials, which cover intermediates and solvents, will be credited with the government and there is no refund clause.

“Hence from an API industry perspective additional funds will be blocked with the government with a surplus credit in the books of account. Therefore, it is not going to be a comfortable situation for the API industry unless and until there is an announcement made for a reduction in GST rate even on the raw material and solvents utilized to manufacture the APIs. Therefore it is definitely loss of margins for the API industry as well as stress on cash flow if the recommendations come through,” he pointed out.

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