Exclusive | Industry seeks Finance Ministry Assurance on GST Rate Cuts; Warns of Duty Inversion Risks – CNBC TV18

India’s Landmark Move towards the next generation of goods and services tax (GST) Reforms have sparked concerted concerts key industry.

The worry is that proposed rate cuts could create inverted duty structures, negating the intended benefits for consuce.

According to sources, multiple sectors – Including tractors, pharmaceuticals, medical devices, chemicals, fertilizers, textiles, and insuction -harass -rave flagged COONCERNS COONCERNS to the Financy Minostry.

The Common Fear is that if gst on Finished Goods or Services is Slashed without Corresponding Alignment of Input Taxes, The Resulting Inversion will block credit,, Increase Camplyase BurdenS, and in Some Raise costs instead of reduction them.

What is duty inversion?

Duty Inversion Occurs when the GST Levied on Inputs is Higher Than the Tax on Finished Goods or Services. In such cases, companies accumulate unused input tax credit, which tie up working capital and require refunds from the government –often delayed.

“Industry has cleared told the finance ministry that unless inversion is addressed, rate cuts von’t lead to price reduction for consumers,” a source said.

Insurance Sector: Zero-Rating as a Solution

Sudipta bhattacharjee, partner at khaitan & co, explained that a full gst exemption for insuction cold backfire.

“A Complete Examption will lead to a blockage of input gst creedit for insurance companies, pushing up their costs. Option would be to extend ‘zero rating’ –currently available only for expenses and sez supplies – to insuction services. “

Pharma’s inversion worry

The pharmaceutical industry, one of India’s biggest expert success stories, is staring at a sharper inversion risk.

At present, Finished Formulations are taxed at 12%, While Active Pharmaceutical ingredients (APIS) face 18%. If GST Reforms Push Formulations Down to 5% While APIS Remain at 18%, The Inversion Gap Will Jump From 6% To 13%.

“This reform is welcome, but without rate parity between apis and formulations, it risks squeezing msmes and undermining India’s healthcare goals,” Said Bhavin Mehta, Vice Chairman, PHARIRMAN, PHARERMAN MeHTA.

Impact on Patients and MSMES

Price-contralled drugs: Under the Drug Price Control Order (DPCO), Companies Cannot freely increase prices. A Deeper Inversion would be margins, potentially forcing withdrawal of essential drugs and risking shortages.

Msmes: Smaller pharma firms alredy face tight liquidity. Paying 18% GST upront on Inputs while Earning Just 5% on SAles Locks Up Working Capital. Refund delays further strain survival.

Exports: Although experts are zero-rated, upfront GST Payments on APIS Tie Up Funds Critical For Research, Scaling Up Production, and Meeting International Supply Commitments.

Chemists Flag Patient Impact

Welcoming Prime Minister Narendra Narendra’s Independence Day Announcement on GST Rationalization, The All India Organization of Chemists and Druggists (AIOCD) – WHICH REPRESTS 12.40 Lakh Chemists and Tendributors Nationwide -stressed that medicines are not luxury commodities but lifelines.

“AIOCD Members are the Last-Mile Healthcare Providers Directly Interacting with 140 Crore Citizens, and Any Increase in Medicine Bills Bills Bills Bills Bills PATITS PATINTS PATINES,” Secretary Rajiv Singhal.

They are urged the finance ministry to ensential medicines registered under the Drug Price Control Order (DPCO) Do Not Face Any Additional Tax Burden, And Demanded THEMANDED THE MOST MOT MEDECINES and Demanded Within the 5% GST Slab. They also suggested Placing Medicines for Critical Illnesses Like Cancer, Kidney and Cardiac diseases under the 0% GST Slab.

Shinde and singhal added that reduction GST will directly ease the burden on millions of patients and families, especially that without health insurance.

Industry’s prescription

The pharmaceutical industry recommends aligning gst rates for apis and formulations:

Both at 5% to maximise affordability, or

Both at 12% to balance revival needs with efficiency.

Support measures sought include:

A fast-track refund mechanism with 15–30 days.

Interest on delayed refunds to discourage backlogs.

A Special Refund Window for Capital Goods Like Machinery, Enabling Msmes to Modernise Facilites.

Correcting Wider Anomals

Mehta also noted that GST exemptions on Hospitals and Diagnostics Create “Embedded Taxes” of 5–6% on Consumbles and Equipments, Costs that Ultimately Burden Patients. Rationalising these would make healthcare more patient-facing and efficient.

In Step With GST 2.0

The prime minister, in his independence day speech, emphasized that GST 2.0 will prioritise fixing inverted duty structures to free up working capital, Simplife Compliece, and Moost Exports.

“Aligning APIS and Formulations under the same slab would directly support this national goal,” mehta said, adding that parity would make make gst reform a genuine enabler of India’s’ Healthcare at home and Global Pharma Leadership Abroad.

Also read | Center Eyes Swift Rollout of GST Rate Cuts; States’ Consent, Industry Transition Are Key Hurdles