Serious Anomalies and Unjust GST Rate on Essentials Medicines

THE prime minister has been requested to ensure that essential medicines listed in the National List of Essential Medicines are kept outside the ambit of the Goods and Services Tax (GST).

In a letter to Prime Minister Narendra Modi on July 28, CITU leader J S Majumdar flagged serious anomalies in the tax structure for medicines fixed by the GST Council, disregarding a Supreme Court order and subsequent government notifications.

The Supreme Court had in March 2003 issued an order giving two directions to the government – on controlling medicine prices and for preparing the National List of Essential Medicines (NLEM).

Accordingly, the government constituted an expert committee for preparing the NLEM. It finalised the list of 348 single and combination medicines. The government notified this list of 348 medicines in 2011 and issued the Drug Price Control Order (DPCO), 2013 fixing drug prices under a new formula, replacing the List of Essential Drugs (List 1) of 74 bulk drugs under the DPCO, 1995.

The NDA government updated the NLEM in 2015, having 376 medicines in the list based on the recommendation of the core committee.   

“While inaugurating Kiran Multispeciality Hospital in Surat on 17 April, 2017 you had stated, as quoted by ANI, ‘The prices of 700 medicines were capped so that poor people get medicines at reasonable rates when they face grave diseases.’ You were obviously referring to the ceiling prices of the medicinal formulations, based on current 376 single and combination medicines in NLEM 2015,” he wrote to the prime minister.

Yet, the GST Council fixed the GST Rate Schedule being completely oblivious of these developments and fixed 5 per cent GST on the medicinal formulations based on 74 bulk drugs in the ‘List 1’ of the DPCO, 1995. Whereas, the ‘List 1’ has already been replaced by NLEMs and DPCO, 2013. How can the GST Rate be fixed on a non-exist ‘List 1’ of DPCO, 1995?  

“It seems that your government was in a tearing hurry to roll out GST on July 1, 2017 and, in the process, adopted, by default, the draft of GST Rate Schedule prepared by the then UPA government in 2012, before the DPCO 2013, fixing only the rates,” he said.  

In the 2013 order, the government also exempted all essential drugs from central excise duty. Several state governments also exempted sales tax on all essential medicines. Virtually no tax was being collected on essential medicines prior to GST in line with the Supreme Court’s direction.

Yet, the GST Council fixed 5 per cent GST on all essential medicines. For the rest of the medicines, the GST Council has fixed 12 per cent GST. The GST structure is so designed that now the central government will collect 6 per cent as CGST on the price at retail level.

The situation is further aggravated due to the GST structure. The DPCO 2013 allows up to 10 per cent annual increase in prices of medicines which are outside the NLEM. It will have cascading effect on GST also. Both CGST and SGST on medicines will increase by 10 per cent annually. With every retail-price increase of medicine there will be windfall gains by central and state governments through annual increase of both CGST and SGST on medicines.

“As GST is not under parliamentary scrutiny and the political executives have the absolute power to take final decision, I have no option, but to approach you for remedy…Under the above circumstances, I urge you to relook into the entire GST structure and the GST Rate Schedule and take remedial steps particularly in the three following areas: 1. Zero GST on all formulations of essential medicines as in NLEM; 2. CGST on rest of the medicines at par with the central excise duty as was on 30 June, 2017 and matching SGST; and 3. Delinking GST on medicines on cascading effect of annual increase of medicines retail prices; or cap on prices of all medicines,” he said. 

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