As one of the largest producers of Active Pharmaceutical Ingredients (APIs) in the world, India supplies a diverse and broad range of essential medicines to markets all over the world. For global pharma buyers considering the procurement of APIs from India, being aware of the import duty in the importer’s situation is a important consideration in the budgeting, cost assessment and compliance processes. In the below article we will look at import duty on Pharma APIs as well as anything else that is a factor in it to assist the global buyer with the import process in India.
1. What Are Pharma APIs?
Active Pharmaceutical Ingredients (APIs) are the therapeutic components of pharmaceutical drugs. Pharmaceuticals can be derived from natural, synthetic, or biotechnological processes. In India, APIs are produced for domestic use and for exports; India is a leading supplier of APIs globally.
2. What Is the Import Duty on Pharma APIs in India?
India levies import duties on many goods, including pharmaceutical products and raw materials. The amount of import duty levied on Pharma APIs is determined by the type of API, how it is classified with respect to the Harmonized System (HS) code, and in some cases, by trade agreements or exclusions.
As of 2023, the normal import duty imposed on pharma APIs ranges from 7.5% to 10%. The import duty on Pharma APIs may be variable, dependent on factors such as:
2.1 HS Code Classification
Pharma APIs use specific HS codes classifications that can be depended on to ascertain the relevant duties. For instance, depending on whether the API is synthetic, biotechnological, or natural, it could depend on a different HS Code, with each having a different duty.
2.2 Customs Duty Rates
The Government of India assesses a Basic Customs Duty (BCD) on imported products including pharma APIs. In addition to the BCD there may be additional taxes and duties such as:
- Integrated Goods and Services Tax (IGST): This applies to most imported goods and services and is usually between 5% and 18% depending on the product.
- Social Welfare Surcharge: This is a 10% surcharge on the BCD, which is only usually applied on high duty products.
2.3 Preferential Trade Agreements (PTAs) & Free Trade Agreements (FTAs)
India has signed various trade agreements with other countries and regions. Such agreements often provide reduced or zero customs duties on certain pharma APIs imported from countries within the agreements such as ASEAN countries, Japan, and South Korea. From the buyer's perspective, it is important to determine if the exporting country has a trade agreement with India.
2.4 Exemptions of Import duties
In review, the Indian Government provides exemptions or concessional duties for importing APIs in certain cases. Generally, this applies for APIs that are imported for products that are not manufactured in India or are imported for essential items to meet local healthcare requirements. Buyers must routinely check for updates to these exemptions, as they can change periodically.
3. Other Costs of Importing Pharma APIs
In addition to our import duties, there are other costs associated with importing pharma APIs to India. These include:
- Customs Clearance Fees - The customs fees for clearing goods through the Indian Customs can vary due to documentation complexity and the services of agents providing customs clearance.
- Shipping and freight costs - freight costs will be the cost of moving your products to India or costs incurred to get the shipment to the final destination in India. The shipping costs vary based on shipping routes and weight/volume of the shipment.
- Packaging and labeling compliance - India has various compliance requirements on how pharmaceutical products are packaged and labelled. If these are not complied with, delays and financial penalties may be applied.
When considering the total landed cost of importing API into India, global pharma buyers must take into account these various cost components.
4. The Role of Indian Customs in Pharma API Imports
India's Customs Department is a significant stakeholder in the importation of pharma APIs into India, with the main concern being quality and compliance with Indian domestic regulations. The importation of goods into India usually follows the process outlined below:
- Submission of Documentation: Buyers are to submit the relevant documentation, including, the invoice, packing list, certificate of origin, and a certificate of analysis.
- Customs Inspection & Clearance: Customs will inspect the shipment and complete clearance for the shipment based on its customs compliance.
- Duty & Tax Payment: Once the shipment is cleared, the appropriate duties/taxes will require payment (before releasing the goods).
5. Influence of Global Trade Policy on Indian Import Duty
Import duties on pharma APIs may be subject to influence through global trade policies including tariffs, trade sanctions or other geopolitical events. If trade relations between India and other countries or economic region shifts, the duty rates may reflect that change. For instance:
- U.S.-India Trade Relationships: If there is a change in the U.S.-India trade relationship, it may affect the import duties on pharma APIs imported from the U.S.
- Brexit Influence: The UK is recalibrating their trade relations with India following Brexit; this could have an impact on the duty rates associated with APIs imported from the UK.
6. How to Stay Informed of Changes to Import Duties
Import duty rates and regulations change over time in response to government policy, economic conditions, or international trade agreements. Global pharma buyers should consider the following tips to stay updated.
- Check the Indian Customs website regularly: The Customs department of India posts updates and notices regularly that relate to tariff information.
- Request to receive industry email information bulletins: Many industry bodies and trade organizations will have newsletters or bulletins that relate to changes in the import regulations and duties.
- Use customs brokers: If you maintain a professional relationship with an experienced customs broker or freight forwarder, they will keep you current with the most relevant duty rates you are interested in.
Conclusion
For global pharma buyers, it is critically important to understand the import duty on pharma APIs in India for informed purchasing decisions and compliance with local law. With global buyers keeping current with changes to customs duties, taxes, and trade agreements, they can better assess their cost of doing business in India and avoid any interruptions in the supply chain.
India's position as a global leader in pharmaceutical manufacturing represents opportunities for global buyers, but it requires an understanding of the import duties and regulatory regime that goes along with that opportunity to ensure a successful relationship.