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GST: Drug inventory seen adequate ahead of 1 July rollout

 

Mumbai: Consumers fearing shortage of medicines can breathe a sigh of relief as inventories with distributors and retailers in the country are sufficient to meet demand, one week before the implementation of the Goods and Services Tax (GST). The GST will come into effect on 1 July.

Although there has been a reduction in inventories since May-end, as distributors and retailers tried to minimize losses due to change in tax structure, the current stock holding is adequate, according to All India Organisation of Chemists and Druggists (AIOCD).

“With one week to go for GST and more than three weeks of inventory at the distributor level, plus retail inventory of 2-3 weeks, the overall pharmaceutical industry is in a positive situation and we can positively affirm that there will be no consumer shortages,” AIOCD said in its 23 June report.

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As of 21 June, distributors on an average had 22 days of inventories, compared to 24 days as on 14 June, 27 days as on 7 June and 40 days as on 31 May, as per AIOCD data.

Inventory holding days for medicines for diabetes, gastrointestinal diseases and cardiac ailments were lower than the average of 22 days. However, retailers had encouraged consumers to buy medicines for such chronic diseases in advance in a bid to offload their stock.GST rate for medicines has been fixed at 12%, while essential drugs, including insulin, will be taxed at 5%. Photo: Hemant Mishra/Mint

Under the GST regime, most medicines will be taxed at 12%, while essential drugs including insulin will be taxed at 5%.

While a marginal increase in tax burden is likely because of GST, the bigger concern has been the transition to the new tax system, especially regarding inventories held on 30 June.

On the pre-GST stock, distributors can avail of 100% credit on Cenvat if they possess a central excise invoice issued by the manufacturer, importer, super-stockists or carrying and forwarding (C&F) agents. In case they do not have an excise invoice, then credit can be availed of only on 40% of the central GST.

Currently, warehouses, depots, super-stockists and C&F agents of many manufacturing companies are not registered under central excise; so their distributors will not be eligible to claim 100% credit of excise duty on pre-GST stock. This will mean some financial loss for distributors and therefore, they are reducing inventories, said a Mumbai-based pharma products distributor.

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Meanwhile, many pharma companies have asked the stockists and distributors to maintain sufficient stocks and assured that they will get compensation for the loss incurred due to GST transition. Companies also offered higher discounts to distributors in the month of June, the distributor said.

Global healthcare information provider QuintilesIMS recently conducted a survey with 25 distributors and 200 chemists across India to understand their preparedness for the transition to GST.

According to the survey, on-ground readiness of distributors and chemists to implement GST by 1 July was below par and hence, pharma companies will need to leverage cross functional participation within the organization to ensure effective implementation.

Overall, GST is likely to improve operational efficiencies because with central sales tax losing its relevance, the focus will shift from ‘tax advantage’ logistics planning to ‘strategic location of supply’ planning, said Amit Mookim, general manager, South Asia, QuintilesIMS.

“The overall increase in tax burden will get offset by the improved efficiencies. Pharma companies are likely to absorb the additional tax burden (an estimated net increase of about 1.8% on finished formulations). While the long term outlook remains positive, managing short term disruption will be critical,” Mookim added.

 

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