The government has clarified that input tax disallowance will be applicable to all persons in the supply chain of pharmaceutical goods, including manufacturers and importers, under the reduced rate regime. This means that no person in the supply chain will be able to claim input tax credit on the purchase of pharmaceutical goods taxed at the reduced rate of 1%.
The clarification comes after the Finance Act 2023 amended the Eighth Schedule to the Sales Tax Act 2017. The amendment replaced the phrase "in the supply chain" with the phrase "by the manufacturer or importer" at Serial Nos. 81 and 82 of the Eighth Schedule.
The amendment was made to address an anomaly in the law. Previously, it was unclear whether input tax disallowance would apply to all persons in the supply chain or only to the manufacturer or importer. The amendment now makes it clear that input tax disallowance will apply to all persons in the supply chain.
The clarification is a positive development for the pharmaceutical industry. It will help to ensure that the industry is not at a competitive disadvantage compared to other industries that are not subject to input tax disallowance.
