Pharma sector: FBR likely to come up with tax relief measures

ISLAMABAD: The Federal Board of Revenue (FBR) is working on tax relief measures for the pharmaceutical sector to be announced in the upcoming budget (2023-24).

Sources told Business Recorder that the budget makers are reviewing different proposals of the pharmaceutical industry to be incorporated in the Finance Bill (2023).

In this regard, the industry has started consultative process with the policy makers including senior government officials engaged in budget preparation for 2023-24.

Major proposals under examination of the FBR are: Sales tax exemption on active pharmaceutical ingredients presently subjected to one percent sales tax; zero-rating regime should be implemented for DRAP-registered drugs with tax paid on excipients only to be refundable on the consumption basis and sales tax on utility bills, packing material, and plant/machinery should also be exempted.

The industry has informed the Ministry of Finance that concerning the production of medicines in the country, the industry is facing multiple challenges in terms of the increasing cost of production. These challenges pose a threat to the continuous supply of medicines to patients and healthcare professionals.

The industry is reeling with extreme pressures due to the devaluation of the Pakistani rupee against the US dollar, the increase in the cost of utilities, and exponential inflation. Since July, there has been around a 78% devaluation of the rupee, a 142% increase in the fuel cost per liter, a 177% increase in the electricity tariff, and an overall increase of 300% in working capital costs.

Considering the sudden and rampant increase in the cost of doing business, the industry has applied for a 38.5% inflationary adjustment in the medicine prices but after the recommendation of the policy board of DRAP and approval of ECC, it is still in the process of approval and notification of the cabinet.

But this increase alone cannot remedy the industry’s agony in providing medicines while sustaining operations. With all these detrimental factors in play, the pharmaceutical industry is in a nose-dive decline as per the recent report of Large Scale Manufacturing Industries (LSMI).

The worrisome statistics show that to date, the pharmaceutical industry is having a -23% decline in sales on a year-to-year basis. If this trend continues, there will be an acute shortage of medicines in the country.

To help the industry continue the supply of medicines, the industry has proposed that one percent sales tax on APIs imposed earlier be exempted. Also, a zero rating should be implemented for DRAP-registered drugs with tax paid on excipients only to be refundable on the consumption basis (previously nonrefundable and fixed tax at 1%).

Furthermore, sales tax on utility bills, packing material, and plant/machinery should also be exempted. This scheme should be applicable from July 1, 2023 to allow continuity to the previous regime.

These measures would provide breathing space and relief to the pharma manufacturers and enable them to provide high-quality medicines without the fear of non-availability, the industry added.

Copyright Business Recorder, 2023