After GST, pharma com­pa­nies pre­fer Gu­jarat over tax havens MEDICINE CHECK-UP


The goods and ser­vices tax (GST) has proven to be a boon for the phar­ma­ceu­ti­cal in­dus­try in Gu­jarat, with a re­newed in­ter­est among pharma com­pa­nies to set up units here as the hilly states tax havens lose at­trac­tive­ness. As per the lo­cal Food and Drug Con­trol Ad­min­is­tra­tion (FDCA), they are han­dling 30-40 ap­pli­ca­tions ev­ery week for brown­field and green­field units since GST has been im­ple­mented, as against 10-12 per week ear­lier.

H G Koshia, com­mis­sioner, Gu­jarat FDCA, in­formed that data col­lected for the pe­riod be­tween June 13 and September 12 shows that around 56 fresh pro­pos­als to set up phar­ma­ceu­ti­cal man­u­fac­tur­ing units have come in dur­ing this pe­riod. This apart, an­other 100-120 pro­pos­als have come in for ex­pan­sion at ex­ist­ing units or brown­field ex­pan­sion. Th­ese are mainly small- and medi­um­sized units and the to­tal in­vest­ment is es­ti­mated to be around ~600-650 crore.

Gu­jarat con­trib­utes to around 33 per cent of the na­tional phar­ma­ceu­ti­cal pro­duc­tion, and this share is ex­pected to move up to 40 per cent by 2020, feels the In­dian Drug Man­u­fac­tur­ers As­so­ci­a­tion (IDMA).

GST was im­ple­mented from July 1. This has largely re­duced the at­trac­tive­ness of set­ting up in­dus­tries in tax havens of hilly states.

While the Cab­i­net Com­mit­tee on Economic Af­fairs, chaired by Prime Min­is­ter Naren­dra Modi, has given ap­proval to the scheme of pro­vid­ing Bud­getary Sup­port un­der the GST regime for the el­i­gi­ble in­dus­trial units lo­ca­tions in Jammu and Kash­mir, Ut­tarak­hand, Hi­machal Pradesh and North Eastern states, in­clud­ing Sikkim till 2027, the same ap­plies to the ex­ist­ing units and in­volves a re­fund mech­a­nism. The sup­port No. ofWHO-GMP cer­ti­fied man­u­fac­tur­ing units Gu­jarat Maharashtra Hi­machal Pradesh Te­lan­gana Ut­tarak­hand Tamil Nadu Kar­nataka of ~27,413 crore will be avail­able for the resid­ual pe­riod (10 years from date of the com­mer­cial pro­duc­tion) in th­ese states and would be re­stricted to the central share of the cash com­po­nent of CGST and IGST paid by the af­fected el­i­gi­ble in­dus­trial units. It is es­ti­mated that a to­tal num­ber of 4,284 units lo­cated in th­ese tax havens will ben­e­fit from the scheme.

How­ever, when it comes to fresh in­vest­ments in green­field units, th­ese states thus lose out on the com­pet­i­tive ad­van­tage vis-a-vis the es­tab­lished pharma man­u­fac­tur­ing hubs like Gu­jarat and Maharashtra.

Vi­ranchi Shah, chair­man, IDMA — Gu­jarat State Board, ex­plained that un­der the cur­rent tax struc­ture con­tract, man­u­fac­tur­ing units (40-45 per cent of the do­mes­tic pharma pro­duc­tion comes from con­tract man­u­fac­tur­ing) will ben­e­fit. “Let’s as­sume one has an in­put cost of ~100 (this in­cludes pack­ing ma­te­rial, bulk drugs, cap­sules etc which are taxed at dif­fer­ent rates), he will roughly pay a tax of 18 per cent, or ~18 on the in­puts. The man­u­fac­turer then value adds on the in­put and let us as­sume this amount is around ~50, then the fi­nal prod­uct is priced at ~150. At a 12 per cent rate, tax on this also comes at around ~18. Now, this man­u­fac­turer is also claim­ing in­put tax credit on the tax paid on in­put or pur­chases. This re­duces his over­all tax bur­den sig­nif­i­cantly.”

In­put tax credit ba­si­cally means that at the time of pay­ing tax on out­put, one can re­duce the tax one has al­ready paid on in­puts.

Shah feels that in the con­tract man­u­fac­tur­ing space, value ad­di­tion or mark up is hardly ever over 50 per cent. “There are not many prod­ucts where you can value add more than 50 per cent of your in­put cost. On an av­er­age, 30-40 per cent value ad­di­tion is done,” he said. Con­sid­er­ing the ex­ist­ing hubs like Gu­jarat and Maharashtra have skilled man­power, and in an uni­form tax regime, th­ese hubs would be­come more pop­u­lar among pharma com­pa­nies, es­pe­cially con­tract man­u­fac­tur­ers.

The in­dus­trial town of Baddi in Hi­machal Pradesh had at­tracted sev­eral phar­ma­ceu­ti­cal units after the sub­sidy scheme was an­nounced in 2003. Ac­cord­ing to mar­ket es­ti­mates, around 360 pharma units had set up shop in the state, at­tracted by the tax in­cen­tives. At least 50- 60 small, mid-sized and big pharma from Gu­jarat had moved to Hi­machal, Ut­tarak­hand and Sikkim to avail the in­cen­tives dur­ing the pe­riod that in­cluded Alem­bic Pharma, Tor­rent Pharma, among oth­ers.

In­ter­est­ingly, Maharashtra has not seen a sim­i­lar surge in ap­pli­ca­tions like Gu­jarat. A se­nior of­fi­cial in the Maharashtra Food and Drug Ad­min­is­tra­tion said that things have not seen any in­creased mo­men­tum since GST im­ple­men­ta­tion. “We are hope­ful that phar­ma­ceu­ti­cal in­dus­try will shift it’s man­u­fac­tur­ing base to Maharashtra after im­ple­men­ta­tion of the GST but we are yet to re­ceive fresh pro­pos­als,” said a se­nior FDA of­fi­cial from the state.

Shah felt that this might be be­cause a lot of Maharashtra based com­pa­nies and even new ones pre­fer to set up units in parts of Gu­jarat that bor­der Maharashtra like Vapi, Val­sad, An­klesh­war, etc as the land costs are rel­a­tively lower and also th­ese ar­eas are close to ex­ist­ing bulk drug hubs of Bharuch and An­klesh­war. “This might be the rea­son be­hind Gu­jarat wit­ness­ing a surge in ap­pli­ca­tions while Maharashtra has not ex­pe­ri­enced any spurt,” he said.

Gu­jarat is also plan­ning to set up a phar­ma­ceu­ti­cal park in its flag­ship in­dus­trial hub Sanand, about 30 odd km from Ahmedabad un­der the Clus­ter Devel­op­ment Pro­gramme of the Centre. Al­ready around 50 hectares of land has been iden­ti­fied.

As such, Gu­jarat has around 3,000 li­censees for al­lo­pathic drug man­u­fac­tur­ing, apart from around seven home­o­pathic li­censees, 500 ayuvedic and 600-700 cos­met­ics li­censees, Koshia in­formed. This, how­ever, does not rep­re­sent the num­ber of units as one unit at times has mul­ti­ple li­censes for dif­fer­ent cat­e­gories of prod­ucts. Over­all, there are around 1,200 drug man­u­fac­tur­ing units in Gu­jarat.

In con­trast, Maharashtra has around 890 phar­ma­ceu­ti­cal man­u­fac­tur­ing units. Gu­jarat has the max­i­mum num­ber of WHO- GMP cer­ti­fied man­u­fac­tur­ers in the coun­try at 280. Maharashtra is close be­hind at 222.

Sim­i­larly, the in­dus­trial town of Baddi in Hi­machal Pradesh had at­tracted sev­eral phar­ma­ceu­ti­cal units after a sub­sidy scheme was an­nounced in 2003

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