Pharma sector demands payment of ST refunds on ‘purchases’ basis

ISLAMABAD: The pharmaceutical sector has threatened to close down all pharma factories/manufacturing units, if the Federal Board of Revenue (FBR) fails to issue sales tax refunds on the basis of “purchases.”

The decision was taken during an emergency meeting of the industry to review the FBR response on refund payments.

According to a statement of the Pharmaceuticals Manufacturing Association (PPMA) Chairman,Qazi Mansoor Dilawar, issued on Monday, the industry would be forced to shut down all manufacturing units resulting in severe shortage of medicines in the country. After another five days period, the whole industry would be closed, Dilawar said in the statement.

The FBR has started collecting sales tax on the import of pharmaceutical raw materials used in the manufacturing of medicines from January 16.

The FBR had promised to reconsider the system of refund payments, but so far, no notification has been issued. Moreover, the FBR has also not issued any statement to pay refunds on the basis of purchases, as 17 percent sales tax has been paid on the import of pharmaceutical raw materials used in the manufacturing of medicines.

The industry wants refunds on the basis of “purchases” and not consumption based. If the FBR fulfils its promise, the industry is ready to take back its strike call and shutter down of the manufacturing units.

Earlier, the industry has also given five days’ ultimatum to the government to withdraw sales tax on the import of raw materials/inputs or issue refunds at the purchases stage or industry will go on strike.

This would result in shortage of medicines in the country.

Moreover, the prices of the drugs would also be increased.

On Monday, the industry has further extended deadline by another five days and the government would be fully responsible of the shortage and price increase in coming days.

Chairman Dilawar stated that the FBR must rescind the “FASTER-Pharma” rules immediately. The FBR had issued SRO 383 (1)/2022 to notify the new consumption-based refunds to the pharmaceutical sector through amendments to the Sales Tax Rules, 2006.

The consumption based refunds are issued after manufacturing and final supply of the finished products, i.e., medicines in the market.

Legally, the input tax is refundable to pharmaceutical companies on the basis of purchases except exports. There is no sanction under the sales tax law to restrict the same on the basis of consumption. “FASTER-Pharma rules issued on March 7, 2022 by the FBR are not in line with the legal basis”. These are against the law and must be rescinded, immediately, he stated.

The PPMA is not asking for any concession. It is the present law, which entitled the refund on the basis of purchases not consumption and the FBR cannot act anything beyond the law.

So far, no mechanism has been devised for the payment of refunds to the pharmaceutical sector on the basis of “purchases”.

Copyright Business Recorder, 2022