The misrepresentation of pharma-sector relief

Reduction of customs duty on 88 pharmaceutical raw materials! What could have been better? A lot! The slashing of the customs duty on the sectors eighty eight raw materials sound good only as long as one does not know the actual number of imported raw materials that go in the production of medicines and drugs. According to a rough estimate, more than a thousand types of items are imported by the pharmaceutical sector for the local production and many of these inputs are already enjoying a customs duty of 5 percent. In such a scenario, axing customs duties on the import of 88 raw materials from 10 to 5 percent is merely a relief for an industry that was seeking much more from the much anticipated budget 2012-13. Incising the current taxes and duties on the import of raw material by the pharmaceutical companies tells that besides the customs duties ranging between 5-20 percent, the industry also has to pay withholding taxes of 2 percent and special excise duty of 1 percent. The announcement of cutting customs duties to 5 percent has not gotten the pharmaceutical manufacturers rejoicing as they are already incurring high cost of production with customs duty on many chemical imports skewed towards 5 percent. Prior to the budget announcement, the pharmaceutical industry had set forth its evident grievances regarding the pricing mechanism after the devolution of health ministry. Amid continued cost increase on the back of energy price escalation, inflation and Rupee depreciation, it urged the government to rationalise taxes for the pharmaceutical industry. However, the way budget 2012-13 unfolded, the future price hike in medicines is inevitable. What could have been done? With no allocation for R&D in the recent budget for the health sector yet again, at least the customs duty on raw material import should have been slashed to zero percent to bring some respite in the rising cost of production. Ideally, no duty should be charged on the import of any kind of direct inputs for such a significant sector. Moreover, situation since GST is not allowed as an output tax, in ideal the pharmaceutical industry should be exempted of sales tax on raw material and packaging as its impact cannot be translated into export or local prices in order to make medicines affordable for the masses. It is not going to be celebration times for the pharmaceutical manufacturers this fiscal year again. Much more was needed from the much awaited budget 2012-13. Instead of baffling explanation on cutback in duties, the Federal Government should have set aside something for R&D in the health sector followed by investment in drug regulation and copyrights that costs fortune to the multinational and local manufacturers as well as the economy in shape of FDI.