Impact of GST on Pharmaceutical sector By: CMA SUKRUT MEHTA Kirit Mehta & COMPANY Cost Accountants

GST Introduction GST is a destination based Tax Multi Stage Mechanism shifts the tax incidence near to the consumer Largely technology driven Exports will be zero-rated in entirety Tax on Supply of Goods & Services – concept of sale, manufacture not relevant Plethora of indirect taxes to be subsumed Harmonization between Center and State Tax regimes KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

GST Introduction – Taxes to be subsumed CENTRAL TAXES STATE TAXES Central Excise duty Additional duties of excise Excise duty levied under Medicinal & Toilet Preparation Act Additional duties of customs (CVD & SAD) Service Tax Surcharges & Cesses State VAT / Sales Tax Central Sales Tax Entertainment tax Luxury tax Entry tax Taxes on lottery, betting & gambling Cesses & surcharges Purchase Tax KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

GST INTRODUCTION – WAY FORWARD SGST law to be passed by the State Legislatures GST Council to fit tax rates to various categories of Goods or Services Sector Wise guidance notes to be prepared Migration and handholding of existing tax payers Outreach program for trade and industry Change Management KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

Expected Reduction in Price of Goods KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

Types of Supply Chain Setups Manufacturer Manufacturer & Marketing Manufacturer, P2P & Marketing Importer Importer & Marketing Manufacturer & Distributor Manufacturer & Govt Supply Manufacturer & Institutional Seller KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

Channel of Distribution SBU BASED MARKETING SETUPS Manufacturer to Super Stockist Super Stockist to Wholesalers Wholesalers to Retailers Retailers to Consumers Wholesalers / Company to Institutions SBU BASED MARKETING SETUPS KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

Channel of Production / Procurement Produced by manufacturer’s factory in original location Manufactured at company’s factory in hilly states Loan Licensed to other manufacturer Principal to Principal manufacturing Intermediate Production in one location and final products at another Outsourcing of a part of the manufacturing process Repacking / Relabeling for Bulk Exports Import of Formulations for sale KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

Implications of GST Excise and IT benefits outweigh incremental freight - Rush for new capacities in fiscal benefit areas CST costlier than additional freight and establishment expenses of CFAs CFA in every large State Catchment area of CFAs delimited by State boundaries Catchment area of distributors also delimited by State boundaries Concept of State boundaries disappears especially for distributors Complete overhaul of Regional Warehouses and CFA locations Based on TDC Less number of CFAs (20-23) Catchment area of CFAs will be distance-based, independent of State boundaries KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

Implications of GST Shorter routes from factories to distributors Direct deliveries Lower stock-in-transit Lesser Transport Costs due to lower part load deliveries Faster clearance at State check points - No need to check for tax revenue leakage Lower freight cost on raw materials and finished goods Lower inventory in the system Lower manufacturing cost due to scale efficiencies KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

Expected Impact Pharma Pricing KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS

KIRIT Mehta & Company Cost Accountants THANK YOU KIRIT Mehta & Company Cost Accountants KIRIT MEHTA & ASSOCIATES COST ACCOUNTANTS sukrutkmehta@gmail.com; +91 98333 93398 KIRIT MEHTA AND COMPANY - COST ACCOUNTANTS