The government of Pakistan doubled the rate of minimum turnover tax on pharmaceutical distributors to 0.5 percent with effect from July 1, 2026, increasing their cost of doing business and putting pressure on profit margins.
The new rate has been set at 0.5 percent for the current fiscal year 2026-27, up from 0.25 percent in the preceding fiscal year 2025-26. The new rate is, however, significantly lower compared to the originally proposed rate of 1.25 percent in the initial budget documents for FY27.
“The rate of minimum tax under sub section (1) of section 113, shall be 0.5 percent in the case of [pharmaceutical] distributors, dealers, sub-dealers, wholesalers of goods…, subject to the conditions that beneficiaries of reduced rate are appearing on the active taxpayers’ lists issued under the provisions of the Sales Tax Act, 1990 and the Income Tax Ordinance, 2001 (XLIX of 2001),” Finance Act, 2026 reads.
Pakistan Pharmaceutical Manufacturers Association (PPMA) former chairman Tauqeer Ul Haq told Business Recorder the government had proposed a five-fold increase in the tax rate to 1.25 percent for FY27 compared to 0.25 percent in FY26.
The Association then approached the Special Investment Facilitation Council (SIFC) and budget anomaly committee and explained that this would badly impact distributors’ profit margins.
“The discussions proved fruitful. They played their role in setting the new minimum turnover tax at 0.5 percent,” Haq said.
He said that if the tax rate had been implemented at 1.25 percent, this would have affected the financial viability of distributors, impacted the supply chain of medicines and put a question mark on drug availability in markets.
Pharmaceutical distribution is a high turnover but low low profit margin business, he said. Firms mostly end up working with less than 1 percent profit margins due to taxes and the cost of transportation, which involves transporting temperature sensitive medicines via temperature controlled facilities.
Another former chairman of PPMA, who talked on the condition of anonymity, said the doubling of the turnover tax to 0.5 percent has cut profit margins notably. The increase in petrol and diesel prices in recent times had already driven up their transportation costs, he added.
Tauqeer Ul Haq further said the budget FY27 has provided some relief to the pharmaceutical industry in general. For example, the government has reduced duties on around 100 APIs (raw material for medicine manufacturing) to zero including anti-cancer medicines and other essential medicines.
The abolition of the super tax for those earning below Rs 500 million a year and reduction in super tax to 8 percent, from 10 percent, for those earning above Rs500 million, were positive budgetary measures for the pharmaceutical industry as well.
Another issue is the government not allowing pharmaceutical manufacturers to keep a bigger chunk of their export earnings in foreign currency despite exports falling amid closure of the border with Afghanistan - a significant export market
“In the backdrop of the current export situation, it may take a long time to increase exports to the targeted $2 billion mark,” said Dr Waheed, another former chairman of the PPMA, recalling that exports stood at around $450 million in FY25.
Pakistan needs a policy to increase exports, which includes removing bottlenecks and making local financing available for small exporters at reduced rates of financing, he said.
The policy should also encourage companies to go for international accreditation including WHO prequalification and PIC/S certification. Such accreditation helps access high end export markets and increase export earnings.
At present, there are some nine pharmaceutical firms which have acquired such international accreditation for export purposes. “Pakistan needs 50 to 60 accredited companies to expand pharma exports,” Dr Waheed said, adding that at present most pharma exports go to low-margin markets.
Copyright Business Recorder, 2026
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