India's new GST regulations were implemented in July this year, leading to an increase in the tax rate on nutraceutical products from 12% to 18%.
This invited criticism amid fears that it would not only affect existing businesses and discourage start-ups from entering the market, but also restrict consumer accessibility to such products, therefore worsening India's malnutrition problem.
But Shrey Badhani, founder and CEO of Kolkata-based start-up Kapiva Ayurveda — part of the Baidyanath Group — told NutraIngredients-Asia that there has been "no material difference" to the company's sales figures and a merely "incremental" change in its production costs since the new GST rules were introduced.
"There have been some changes to tax rates for certain products for which the categories have changed, but overall, the impact in terms of production costs and profit margins has been incremental rather than drastic."
He added: "The change in tax rates for us was moderate, so the new GST regime does not materially impact our prices or cost decisions."
This may come as a relief to consumers, after fears of significantly higher nutraceutical prices loomed in anticipation of the new GST rules.
Badhani also said, however, that the light impact of the new GST rules on a company like Kapiva might be due to its outsourced manufacturing.
While it produces its own finished supplement products for retail, it has several manufacturing partners.
"GST implementation is more complex for companies who do their own manufacturing, since a whole slew of new rules has affected the input side.
"However, we work with a number of manufacturing partners, so the impact on our business and internal processes has been relatively muted."
Higher taxes…lower costs?
Still, it seems firms that handle their own manufacturing processes are no worse off than those who outsource.
Antony Kunjachan, executive director of curcumin supplier Arjuna Natural Extracts, told us: "Long-term production costs will be affected because of credit eligibility for all the products and services liable for taxation", but added that sales figures may in fact increase due to a decrease in production costs.
He explained that the seller's outward tax liability can be partially offset against the GST he pays when buying goods and services, which will be reflected in production costs and lead to an increase in total business volume in India.
Therefore, he said, the new GST framework "will be beneficial to the economy as a whole, and in turn will also benefit the company".
He added that in light of the aformentioned factors, Arjuna expects its production costs in the long run to be lowered "to a certain extent".