ISLAMABAD: The Federal Board of Revenue (FBR), Thursday, outrightly rejected a demand of the pharmaceutical sector to issue sales tax refunds immediately, after import of raw materials/ inputs, saying it would be issued after zero-rated supply of finished products, i.e., medicines.

Sources told Business Recorder, here on Thursday that the tax authorities of the FBR held a meeting with the Pakistan Pharmaceutical Manufacturers Association (PPMA) on the issue of sales tax refunds.

The FBR also rejected the industry’s protest of issuing refunds after purchase of inputs without manufacturing/ supply of finished products. The FBR has also asked the Drug Regulatory Authority of Pakistan (DRAP) to provide the list of items registered as drugs.

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The FBR will only issue refunds on the import of raw materials and inputs used in the manufacturing of drugs/ medicines registered with the DRAP.

No sales tax refund would be issued on the items not registered as drugs with the DRAP. There is no legal justification of issuing sales tax refunds at the purchase stage, say FBR sources.

The consumption based refunds are issued after manufacturing and final supply of the finished products in the market. “How sales tax refunds would be issued at the first stage of import of raw materials of medicines,” the sources said.

The FBR assured the industry that the new “FASTER-Pharma” refund payment system has been finalised to pay refunds within 48 hours. The FBR also committed with the industry that the FBR will specify in the sales tax rules that the refunds would be issued within 48 hours under the “FASTER-Pharma”.

However, sales tax refunds cannot be issued after import of raw materials and inputs of the pharmaceutical sector. The refunds would be issued after zero-rated supply of medicines in the market under the “FASTER-Pharma” refund payment system, the sources added.

About the un-registered distributors of the pharmaceutical companies, the FBR informed the association that the distributors would be registered or liable to pay “further sales tax” on supplies to un-registered persons.

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The FBR said that the zero-rated regime at import stage is introduced for drugs registered under the Drugs Act, 1976. Pharmaceutical goods and their raw materials were earlier exempt from sales tax; as a result, most of the supply chain was undocumented. This had led to misuse of this facility and revenue leakages.

Moreover, the sector had absorbed tax paid on various inputs including packaging material and utilities. These input taxes became part of cost and were passed on to patients. In order to address these issues, pharmaceutical products are made zero-rated and any tax paid on their inputs is made refundable. This measure will bring transparency to the sector and help the FBR in documenting the entire supply chain.

It will also help the government in controlling and reducing the price of pharmaceutical goods. In order to process the refund claims of this sector, a refund module on the pattern of FASTER is devised, the FBR added.

Copyright Business Recorder, 2022