Pharma sector seeks bigger share of dollar earnings, eyes $2bn annual exports

KARACHI: With the aim to boost the pharma industry’s annual export earnings to $2 billion, the Pakistan’s Pharmaceutical Manufacturers Association (PPMA) has urged the government to allow firms to keep a bigger chunk of their export earnings in foreign currency.

They have proposed increasing foreign currency retention to 35% to strengthen their presence and accelerate sales in overseas markets.

Currently, pharmaceutical companies are allowed to retain 15% of their export proceeds in foreign currency to get their brands registered and effectively market them in overseas markets. The firms get the rest of 85% export earnings in local Pakistani currency.

“It is proposed to replace 15% with 35% under the heading (b) of sub-heading (i) of para 35 of chapter 12 of Foreign Exchange (FE) manual issued by SBP [State Bank of Pakistan],” PPMA said in its revised set of budget proposals submitted to the Ministry of Finance for upcoming fiscal year 2026-27.

PPMA former chairman Dr Kaiser Waheed said the current 15% retention is “insufficient to meet the specific needs of the pharma sector since a significant portion of our expenses is allocated to registering products and companies in foreign countries, as well as marketing costs to penetrate international markets amidst intense competition.”

Also read: Deregulation of non-essential medicines leads to 34pc increase in pharma exports

He said increasing the retention percentage of foreign currency will help sales and marketing of products in export territories and effectively compete in the relevant export markets.

This will help develop Pakistani brands in overseas markets and has the potential to “result in hyper growth of pharmaceutical exports from the country to achieve pharmaceutical exports to $2 billion in a couple of years and become the second largest resource for export from the country.”

Pakistan’s pharmaceutical exports growth hit a two-decade high of 34% in the fiscal year ended June 30, 2025, securing the fifth position among the fastest-growing export categories in the country with sales of the locally produced medicines rising to $457 million in overseas markets in FY25.

Waheed said other budget proposals were aimed at increasing local and as well as foreign investment in the industry and increasing earnings in foreign currencies via exports to achieve sustainable economic growth, going forward.

The pharmaceutical manufacturers body has also proposed to the Ministry of Finance to restore 10% tax credit for any amount invested in the purchase of plant and machinery by pharmaceutical industry, for the purposes of extension, expansion balancing, modernization and replacement (BMR) of the plant and machinery.

“Restoring the 10% tax credit aims to foster a conducive business environment, stimulates industrial growth, and promote economic development. This incentive will enhance the productivity and efficiency of Pakistani companies by encouraging investments in modern machinery. Furthermore, it will attract foreign entities to invest in Pakistan, driving economic growth and development,” budget proposals read.

The tax credit is projected to increase tax revenue from expanded economic activity. “As companies invest in modern machinery, their productivity and efficiency will increase, leading to higher profits and tax revenues.”

“The incentive will attract foreign entities to invest in Pakistan, generating new revenue streams from corporate income tax, withholding tax, and other sources.“

Also read: Pharma sector posts record earnings in 2025

The association also wants to “restore export of pharmaceutical goods to FTR (final tax regime i.e., tax collected/withheld on export proceeds treated as final discharge), subject to realization through banking channels and proper export documentation.”

PPMA said “export growth is a national priority; moving exports away from FTR reduces competitiveness and ties up liquidity without necessarily improving net revenue (especially where refunds/adjustments accumulate).”

The proposed move will help increase export revenue that can result in increased tax revenue for the government. Besides, increased exports can lead to higher foreign exchange earnings, “improving Pakistan’s balance of payments,” it said.

PPMA has proposed the addition of a new provision in Part IV of the Second Schedule to grant a tax exemption to the pharmaceutical industry. This proposal seeks to exclude payments made for drug registration in foreign countries, marketing, and promotional activities from the scope of withholding taxation under Section 152. This relief would apply where payments are made to non-resident persons who do not carry on any taxable activity in Pakistan and where the corresponding income is taxable in the recipient’s country of residence. The proposal aims to reduce the tax and compliance burden on pharmaceutical companies seeking to expand their presence in international markets.

“This [addition of the provision in Part IV] will help exporters of pharmaceutical goods to increase exports as it will reduce the financial burden on exporters thereby increasing the competitiveness and global reach of Pakistani companies.”

The set of budget proposals were primarily focused on removing anomalies in existing laws and procedures to ensure smooth working relations between the government and trade. Additionally, certain items were included for reduction of customs duty (CD) in the larger interest of the general public and to promote exports of health-related products manufactured by PPMA member industries, the proposals read.

In its revised budget proposals FY27 to the Ministry of Finance, PPMA voluntarily withdrew its submission to reduce customs duty on locally manufactured raw materials in light of the National Tariff Policy 2025-2030 and in alignment with their commitment to support government policy.

The withdrawal of proposed changes in customs duty through the revised proposals was made after National Tariff Commission’s (NTC) delegation visited PPMA’s Karachi office and discussed the original budget proposals.