Zero-rating regime for pharma sector: Drug prices should come down by 15-20pc: FBR chief

ISLAMABAD: Federal Board of Revenue (FBR) Chairman Dr Muhammad Ashfaq Ahmed Friday said that the prices of the medicines should come down by 15-20 percent in the market, following introduction of zero-rating regime for the pharmaceutical sector.

Briefing the media on the Finance (Supplementary) Bill, 2021, here on Friday at the FBR Headquarters, the FBR chairman stated that the sales tax exemption to the tune of Rs160 billion has been withdrawn from the pharmaceutical sector.

Presently, the pharmaceutical sector is not operating under the sales tax regime.

“The pharmaceutical sector should not be exempted, but only medicines should be exempted from tax. There is massive misuse of sales tax exemption in this sector,” Ahmed said.

There are input-output and serious documentation issues.

Out of Rs700 billion tax potential, Rs530 billion is undocumented within the pharmaceutical sector due to counterfeiting, tax evasion, transfer pricing, and misuse of exemption.

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He expressed concern that the input tax to the tune of Rs35 billion is passed on to the patients in the form of the packing materials and utilities. Once the documentation of this sector is done, there would be an increase in payment of income tax by the pharmaceutical companies.

He stated that the FBR has proposed to withdraw sales tax exemption on the import of the pharmaceutical raw materials.

However, the local supply has been proposed to be zero-rated.

The pharmaceutical companies will file their returns to obtain expeditious payment of refunds within one-week period.

He assured documentation of the supply chain down to the retail sector under the new regime.

Dr Ashfaq stated that the pharmaceutical firms have been equated with exporters for purposes of release of refunds within 72 hours.

Therefore, pharma companies will now be able to claim refunds on sales tax paid as input tax on packaging material, utilities etc, which they previously could not – having price tag of Rs35 billion.

Expectedly, the prices of medicines in the retail market should come down, approximately by 20 percent.

The FBR chairman further informed that the track and trace system at the pharmaceutical companies would now be possible to fight counterfeit drugs in the market.

Copyright Business Recorder, 2022