Import of pharmaceutical ingredients, local supply: FBR floating three proposals for ST applicability

ISLAMABAD: The Federal Board of Revenue (FBR) will present three proposals to Finance Minister Shaukat Tarin under the Tax Laws (Fourth) Amendment Bill, 2021 on the applicability of sales tax on the import of pharmaceutical active ingredients and local supply of medicines.

Sources told Business Recorder, here on Wednesday that the draft of the Tax Laws (Fourth) Amendment Bill, 2021 is expected to be presented before the finance minister on Thursday (December 16) to have a final review of the bill.

The proposal to charge sales tax on the medicines under the Tax Laws (Fourth) Amendment Bill, 2021 may be finalised today (Thursday).

Presently, the sales tax exemption is available on the import of raw materials for the basic manufacture of pharmaceutical active ingredients and for manufacture of pharmaceutical products, provided that in case of import, only such raw materials shall be entitled to exemption which are liable to customs duty not exceeding 11 per cent ad valorem, either under the First Schedule or Fifth Schedule to the Customs Act, 1969 or under a notification issued under section 19 thereof. First, the proposal is to introduce a lower rate of sales tax on the import of pharmaceutical raw materials, but the local supplies or end product would be exempted from sales tax.

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Second, the proposal is to impose a 17 percent sales tax on the import of raw materials used in the manufacturing of medicines, but the local supplies of medicines would be zero-rated. This shows that the end product is zero-rated, but refund would be available.

Third, the proposal is to allow a lower rate of five percent sales tax on the import of raw materials for basic manufacturing of pharmaceutical active ingredients, and for manufacture of pharmaceutical products. At the same time, the final product would be zero-rated.

According to sources, the FBR has supported the proposal to impose standard rate of 17 percent sales tax on the import of pharmaceutical raw material, whereas, the local supplies of medicines would be zero-rated.

The FBR is not in favour of creating distortion in the sales tax regime by introducing any lower rate of sales tax at the import state or local supply as the Board is committed to remove special tax treatments or lower sales tax rates.

Copyright Business Recorder, 2021