Abbott to reimburse trade partners for GST-related losses

Current rate of tax and duties on pharmaceuticals works out to around 9%

Aneesh Phadnis  |  Mumbai 

Abbott

Drug maker Abbott will reimburse its trade partners for losses which could arise due to changes in the tax rate with the implementation of the Goods and Service Tax (GST) from July 1.

The move follows reports that stockists and distributors are reducing their inventories to the minimum, resulting in fears of a shortage of medciine in the market.

In a note to its trade partners on Wednesday, Abbott said in case the new tax structure and the input claim process results into any loss to partner stockists on the closing of inventory on June 30 or the day preceding imlpementation of the GST, it will reimburse such value to the stockist.

"This will ensure that our partner stockists do not suffer any loss resulting from tax structure changes on the inventory they hold," Abbott said. The company also requested its distributors to maintain a normal inventory and ensure adequate availability of drugs during the transition phase.

GST will come into effect from July 1 and its implementation will change tax rates and consequently change the drug pricing. The exact tax rate is expected to be announced later this month. The current rate of tax and duties on pharmaceuticals works out to around 9 per cent.

"In case the GST rate is higher than 9 per cent, it may necessitate increase in product prices and such increase should be allowed immediately. In case of drugs under price control, the government should notify revised prices as per GST rate or atleast notify a formula for calculating the price revision immediately," said Indian Drug Manufacturers Association president D R Chowdhury.

Kirti Oswal, partner BSR & Associates, said: “Maximum retail price of medicines and trade margins are built around the current value added tax rate of 5-6 per cent and the issue facing distributors is who shall bear the differential tax cost if the GST rate is fixed at 12 per cent. Also, another issue is that no change is permitted in the maximum retail price of the goods except on order of government.”
 
Indian Pharmaceutical Alliance general secretary D G Shah said that there is anxiety across the trade channel regarding modalities of tax adjustment or credits which will be due in case the rate is lower than the current rate. "Distributors and wholesale dealers may keep inventories at reduced level but I do not think there will be any shortage of medicines in the market," he said.

Abbott to reimburse trade partners for GST-related losses

Current rate of tax and duties on pharmaceuticals works out to around 9%

Drug maker Abbott will reimburse its trade partners for losses which could arise due to changes in the tax rate with the implementation of Goods and Service Tax from July 1.The move follows reports that stockists and distributors are keeping inventories to minimum and there are fears this could result in shortage of medicines in the market.In a note to its trade partners on Wednesday, Abbott said in case the new tax structure and the input claim process results into any loss to partner stockists on the closing inventory on June 30 or day preceding GST implementation, it will reimburse such value to the stockist. " This will ensure that our partner stockists do not suffer any loss resulting from tax structure changes on the inventory they hold," Abbott said. The company also requested its distributors to maintain normal inventory and ensure adequate availability of drugs during transition phase.GST will come into effect from July 1 and its implementation will change tax rate and ...
Drug maker Abbott will reimburse its trade partners for losses which could arise due to changes in the tax rate with the implementation of the Goods and Service Tax (GST) from July 1.

The move follows reports that stockists and distributors are reducing their inventories to the minimum, resulting in fears of a shortage of medciine in the market.

In a note to its trade partners on Wednesday, Abbott said in case the new tax structure and the input claim process results into any loss to partner stockists on the closing of inventory on June 30 or the day preceding imlpementation of the GST, it will reimburse such value to the stockist.

"This will ensure that our partner stockists do not suffer any loss resulting from tax structure changes on the inventory they hold," Abbott said. The company also requested its distributors to maintain a normal inventory and ensure adequate availability of drugs during the transition phase.

GST will come into effect from July 1 and its implementation will change tax rates and consequently change the drug pricing. The exact tax rate is expected to be announced later this month. The current rate of tax and duties on pharmaceuticals works out to around 9 per cent.

"In case the GST rate is higher than 9 per cent, it may necessitate increase in product prices and such increase should be allowed immediately. In case of drugs under price control, the government should notify revised prices as per GST rate or atleast notify a formula for calculating the price revision immediately," said Indian Drug Manufacturers Association president D R Chowdhury.

Kirti Oswal, partner BSR & Associates, said: “Maximum retail price of medicines and trade margins are built around the current value added tax rate of 5-6 per cent and the issue facing distributors is who shall bear the differential tax cost if the GST rate is fixed at 12 per cent. Also, another issue is that no change is permitted in the maximum retail price of the goods except on order of government.”
 
Indian Pharmaceutical Alliance general secretary D G Shah said that there is anxiety across the trade channel regarding modalities of tax adjustment or credits which will be due in case the rate is lower than the current rate. "Distributors and wholesale dealers may keep inventories at reduced level but I do not think there will be any shortage of medicines in the market," he said.
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