Pharmaceutical industry has submitted its budgetary proposals to Ministry of Finance demanding reduction in import duty on machinery and packaging material utilized in the industry. In its proposals, the pharmaceutical industry has urged the government to reduce rate of duties (customs duty, additional duty & regulatory duty) and bring rate of sales tax to zero percent on the import of active pharmaceutical ingredients (APIs), products and excipients.
The industry has demanded reduction in the rate of duties (customs duty, additional duty & regulatory duty) and bringing sales tax to zero percent on the import of plant & machinery to manufacture pharma products, equipment and software for quality control.
The industry has demanded the government to reduce the rate of duties (customs duty, additional duty & regulatory duty) and bring sales tax to zero percent on the import of packaging/packing materials exclusively meant for pharma products and the raw materials used for the production of packaging/packing materials. The pharmacists argued that packing materials which are exclusively used for pharmaceutical products cannot be misused and imported materials are monitored by IOCO & DRAP as well. Furthermore, an additional check can be imposed on equipment and machines which are not exclusive for pharma industry by submitting a security to Pakistan Customs which would release it on the consumption evidence of machinery by pharma industry.
Representatives of pharma sector also held meetings with Federal Board of Revenue (FBR) and the senior officials of the Drug Regulatory Authority of Pakistan (DRAP) on April 12.
Pharma industry stated that for achieving the competencies, the domestic pharmaceutical industry has to face multifaceted challenges other than customs duties and sales tax burdens, which as mentioned below, are impeding its growth:
There is a need for facilitation in technological advancement to encourage exports, thereby increasing the gross national product.
Due to rupee devaluation, core inflation rate in Pakistan remained at an average of 7.46 percent from 2010 until 2018 which caused significant hike in prices of APIs/ excipients due to new environmental regulations, regulated price and international guidelines-GMP requirements, BE studies and impurity testing.
One of the major challenges is levy of duties (customs duty, additional duty & regulatory duty) & sales tax, as almost 95 percent of the raw material, excipients, packaging material & machineries for manufacturing drugs, has to be imported, and only 5 percent requirement is met domestically.
The disequilibrium in tariff structure with duties up to 20 percent or higher on import of input materials/machineries to manufacture drugs is not favorable.
Another challenge is levy of sales tax at such higher rate as 17 percent on raw materials (CD more than 11 percent), packaging material, plant machinery and equipment of QC and software. The brunt of sales tax on input has to be endured by the manufacturers themselves as there is no output tax on medicines.
Currently, up to 20 percent customs duties are applicable on a wide range of APIs, which come under the scope of Chapters 28 and 29 of Pakistan Customs Tariff, with an additional duty of 1 percent. Sales tax of 17 percent is also applicable on those APIs whose CD is higher than 11 percent which further increases the prices.
Up to 20 percent custom duties applicable on pharmaceutical excipients, which to a major extent come under the scope of Chapter 28 and 29 of Pakistan Custom Tariff, with an additional duty of 1 percent sales tax of 17 percent is also applicable on those excipients whose CD is higher than 11 percent, which further increases the prices.
Custom duties applicable on a wide range of pharmaceutical machineries, which come under the scope of Chapter 84 of Pakistan Custom Tariff, imposed up to 20 percent with an additional duty of 1 percent and sales tax of 17 percent, are also hindering the growth of the sector.
At present, up to 20 percent custom duties are applicable on packaging materials with an additional duty of 1 percent and sales tax of 17 percent, which further increase the prices.
According to pharma sector, the matter of grave concern is the disequilibrium in duty tariff and high rate sales tax that deny local pharmaceutical industry a level playing field which not only hampers sustained availability of quality drugs at affordable prices but also impedes growth of the country's most promising sector.
According to a report, the health indicators of Pakistan are very poor. Pakistan ranks amongst the countries with the worst health indicators, though not startlingly, since Pakistan's total expenditure on health as a percentage of the GDP remains amongst the lowest in the world: that is 2.0 per cent as compared to 5-14 per cent in developed countries. The effectiveness of any country's health sector depends upon the budget owed to it. However, Pakistan only spends less than one percent of its gross national product (GNP) and less than four percent of its gross domestic product (GDP) on health care.
It is very encouraging and reassuring to state that the domestic pharma industry comprises 751 approved and registered units of which 81 percent are functional. The value of domestic production of drugs and medicines stood at Rs344 billion in 2017 with exports of US $190 million, however technological advancement is required to encourage exports, thereby increasing value of gross national product. Gross National Product in Pakistan increased to Rs13,081,028 million in 2017 from Rs 12,405,972 million in 2016.
The industry's cumulative investment stands at Rs250 billion which generates 300,000 direct jobs and another 900,000 employed indirectly. New proposed investment worth Rs50 billion is aimed at modernization, expansion and up-gradation, which will cost up to Rs300 billion.
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