Pharmaceutical manufacturers in Madhya Pradesh have raised serious concerns over the inverted duty structure under the Goods and Services Tax (GST) regime, urging the government to reduce GST on raw materials used in medicine manufacturing. The industry highlights that while raw materials are taxed at a higher rate, the finished medicines attract a lower GST, causing financial strain and operational confusion.
Currently, most raw materials used in drug production attract 18% GST, while the finished medicines are taxed at only 5%. This disparity has led to blocked input tax credit and refund delays, directly affecting working capital and business efficiency. Manufacturers are demanding a flat 5% GST rate across both raw materials and finished products to resolve the inverted duty issue.
R.S. Goyal, tax consultant, explained that the GST system results in inverted duty in many sectors where the tax rate on inputs is higher than on the output. Although the GST law provides for refund in such cases, the refund process is cumbersome and documentation-heavy, deterring many small businesses from claiming their dues.
Jayprakash Mulchandani, General Secretary of the Basic Drug Dealers Association, stated that pharmaceutical businesses are losing liquidity due to this mismatch. “Manufacturers are forced to pay 18% on raw inputs and get only 5% GST on output, which causes input credit accumulation and capital blockage,” he said.
The Association has formally written to the state and central governments, requesting GST rationalisation in the upcoming Council meeting. With the 50th GST Council meeting expected in the coming weeks, pharma stakeholders are hoping for a major policy shift.
The demand is to uniformly reduce the GST on all medicine-related inputs and finished products to 5%, which would resolve the inverted duty crisis and reduce compliance burdens. If accepted, this move could provide significant relief to the pharma sector, especially MSMEs operating under tight margins.
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