The drugs and pharmaceuticals industry, which is already under the price control regime that effectively brings down drug prices, wants the tax burden lifted in order to keep supplying life-saving drugs.
With the Drug Price Control Order continuing to be a drag on the profitability and growth of pharma sector, the industry has suggested that it is placed in the lowest rate under the goods and services tax (GST) regime.
Instead of seeking exemptions under budget proposals, the industry expects the government to the place pharma sector in the lowest tax bracket under the GST regime.
Under the prevailing scenario, the National Pharmaceutical Pricing Authority (NPPA) and the Drug Price Control Order (DPCO) have the mandate to decide the prices and profit margins by fixing the MRPs of a number of scheduled bulk drugs and their formulations.
While this would help bring down prices of these drugs and make them affordable, this in turn leads to non-availability of many life-saving medicines as producers find these unprofitable.
In the absence of a free market, a pharma company, which is also an enterprise with a profit motive, cannot survive if its margins are restricted or controlled or is dictated to keep it low. A private enterprise needs freedom of deciding its own margin, the industry points out.
In the alternative, the pharma sector wants taxes to be kept at the minimum so that at least these do not impinge on profitability.
Pharma companies are not here to provide subsidised medicines, they are here to do business. It's the government's role to provide subsidy or benefits to the patient, the sector says.
Instead, the industry wants the government to bring in direct benefit transfer (DBT) in healthcare, pharma and hospitals.
Also, since the goods and services tax (GST) is to be rolled out by July, and if the government wants to give the benefit of low prices to the poor, the best option before it to set lower GST rates for pharmaceuticals since they are a necessity and not a luxury.
With the current VAT rate between 4 and 6 per cent across states, the government should seriously consider keeping GST rates for pharma sector at the lowest slab, industry representatives say.
It does not also make sense to increase taxes for producers while providing subsidy to the consumer.
With GST, it will also be possible for pharma companies to pass on the benefits of a low tax rate to the consumer as it would be possible to improve supply chain efficiency by replacing statewise warehouse with central warehouse model.