The pharmaceutical companies practice of giving free products and samples are under consideration for goods and services tax. The companies who offer buy one get one free kind offers or 20 percent extra quantity for the same price may now have to pay GST on the increase or extra product on offer.
The applicability may increase an overall cost accrual on the broad segment of those of consumer products. Major pharmaceuticals companies are being called out by the tax officials to discuss the implications of tax once after the rule is sorted out.
Read Also: Buy 1 Get 1 Offer Stopped by Food Chain Companies Due to GST
The Director-General of GST (Intelligence) is also considering all the details related to incentives and extra freebies which are given to the stockists, distributors from top 30 companies in the pharmaceutical industry.
Also, one point emerges from the tax authorities is that the companies may pay GST or end up reversing the ITC on the extra quantities.
One of the pharmaceutical company responded that “We did receive a query from the Director General of GST (DGGST) regarding trade discounts offered to stockists in one jurisdiction, We have responded to the query and believe that we are in full compliance with the law.
Recommended: Goods and Services Tax Impact on Indian Pharmaceutical Industry
The pharmaceutical companies are doing this practice for many years to attract more and more customers and stockists, but now after the GST announcement, it may arise some litigations.
An expert in litigation practice told that “This issue is not only limited to pharmaceutical companies but applies in a wide spectrum of industries including FMCG, consumer electronics and so on, Therefore, this issue should be examined and appropriately clarified by the government.”