Pharma distributors still coming to terms with GST regime; short-term drug shortages seen

Even as customers get mobile-phone alerts from pharmacy chains to stock up on medicines for July, the pharma industry and the Government are engaged in meetings to iron out the minutiae and prevent supply shortages anticipated while transitioning to the GST regime.

Having met industry associations late last week, the National Pharmaceutical Pricing Authority (NPPA) has meetings lined up this week as well. And on the agenda is allowing the industry a 3 per cent increase in prices on new stocks of controlled products, according to representatives who participated in previous meetings.

Finished drugs attract 12 per cent GST compared to about 9 per cent on MRP now (including excise and VAT ), says Daara Patel with the Indian Drug Manufacturers’ Association. The increase can happen only if and after the NPPA notifies it. A notification is expected next week, a source said. Under the present system, medicines not under price control are allowed an annual 10 per cent price increase in line with the Wholesale Price Index, and how this will pan out still needs clarity, says Patel, as the July 1 deadline to implement GST gets closer. Further, says Patel, the pharma industry has committed to distributors and retailers on reimbursing existing stocks to help prevent supply shortages, as otherwise they would send back products with the old tax rates.

But Dhaval Shah, co-founder with the e-pharmacy PharmEasy, expects glitches in the coming month. “We have alerted our subscription customers to stock up,” he says.

Explaining why, Shah says, companies like his are still recasting their online systems to capture the changed tax rates on the different products. Also, retailers and distributors are wary of being saddled with old stock and so are returning them to the manufacturers. But for a company to bring out enough supplies with the new tax rates may not be possible immediately and that could cause some problems in July, he says.

Echoing shortage fears, JS Shinde with the AIOCD (All India Organisation of Chemists and Druggists), says clarity is required on who would compensate distributors and retailers on stocks. The concern is over the 40 per cent refund they are allowed under Central GST transition rules and the demand is that the Centre give them 100 per cent credit to prevent them from taking a hit.

CGST Transition Rules stipulate that those not paying excise duty would only be allowed 40 per cent refund, says IDMA’s Patel. Distributors and retailers are not registered under excise laws as they do not manufacture any goods, though they are registered under VAT.

“The transitional provisions will impact retailers as they sell goods at MRP determined by the supplier (manufacturer) which is inclusive of the excise duty already charged by the supplier. In the transition period, the retailer will charge the tax liability as per the new GST Rules, but will not be able to pass this on to the consumers due to the MRP,” he says leading to gaps in the credit amount and increased pressure on the retailer.

Greater clarity on these issues is expected as another industry meeting with the NPPA comes up later this week.

G Naga Sridhar reports from Hyderabad: Various retain retail pharmacy chains have been advising their regular clients to stock up on medicines.

In its advisory, Medplus said: “Due to transition to GST, there may be shortage of medicine supplies in July.” It suggested customers should buy additional supplies.

When contacted, Jaya Kumar, Chief Operating Officer, Apollo Pharmacy, said though there is no information on shortage of medicines, Apollo continues to assess the situation till further information.

M Adinarayana, Vice-President, Natco Pharma, said there could be some temporary supply issues.

According to senior a executive of Hyderabad-based listed pharma company, price revision might happen for some drugs as the tax goes up by 4 per cent from present 14 per cent to 18 per cent. “This might lead to some inflationary pressure for the consumer side while for industry the impact will be neutral,” he said.

At a recent media interaction, G V Prasad, CEO of Dr Reddy’s Laboratories, said realignment of inventories in tune with GST would involve costs.