The Pharmaceuticals Export Promotion Council of India (Pharmexcil) has urged the government to align Goods and Services Tax (GST) rates on active pharmaceutical ingredients (APIs) and finished formulations, citing compliance challenges and financial strain on the sector.
According to The Economic Times, formulations currently attract 12 per cent GST while APIs are taxed at 18 per cent. Industry representatives warn that if formulations move into the proposed 5 per cent bracket under the new two-rate GST regime, while APIs remain at 18 per cent, the inverted duty gap would widen from 6 per cent to 13 per cent. Such a disparity ties up working capital, delays refunds, and increases costs in a sector already operating on thin margins.
Pharmexcil Vice Chairman Bhavin Mehta stated that the solution lies in parity – either taxing both categories at 5 per cent to improve affordability or at 12 per cent to balance revenue considerations. Equalisation, he argued, would eliminate refund backlogs, simplify compliance, and ensure that cost benefits flow more efficiently to patients.
Beyond GST alignment, the council has called for targeted relief measures to ease pressure on smaller manufacturers, including a fast-track refund system with defined timelines of 15–30 days, interest on delayed refunds, and interim mechanisms such as deemed credit or dedicated refund cells. Mehta also flagged that hospitals and diagnostic centres, exempt from GST, cannot claim input tax credits on consumables and equipment. These hidden taxes, estimated to add 5–6 per cent to patient costs, further highlight the need for reform across the healthcare value chain.
The broader GST reform currently under discussion proposes a two-rate structure of 5 and 18 per cent, replacing the existing four slabs of 5, 12, 18, and 28 per cent. Select categories such as ultra-luxury cars and sin goods would attract a 40 per cent rate. For the pharmaceutical sector, alignment of rates is viewed as critical to maintaining competitiveness, supporting smaller firms, and ensuring affordability of essential medicines.
As policymakers deliberate on restructuring GST, industry stakeholders argue that correcting anomalies in pharmaceutical taxation could improve liquidity, reduce patient burden, and make the overall healthcare ecosystem more sustainable.
