ISLAMABAD: The pharmaceutical sector is unable to file their first sales tax refund applications under the newly-devised, “FASTER-Pharma” after withdrawal of sales tax exemption to the tune of Rs160 billion from January 16, 2022.

The government has claimed that Rs251 billion out of total Rs343 billion tax exemptions, withdrawn in the Finance Supplementary Act, 2022, will be refunded/adjusted to the pharmaceutical sector, importers of capital machinery, raw materials, and local suppliers of items.

Tax experts told Business Recorder that the FBR has started collecting sales tax on the import of pharmaceutical raw materials used in the manufacturing of medicines from January 16.

The pharma companies are now entitled to file their first refund application in February 2020.

The Federal Board of Revenue (FBR) has claimed that the “FASTER-Pharma” would pay sales tax refunds within 48 hours on the import of raw materials/inputs actually consumed in the manufacturing of finished products, i.e. medicines.

Chairman Pakistan Pharmaceuticals Manufacturing Association (PPMA) Qazi Mansoor Dilawar told Business Recorder that so far, no mechanism has been devised for the payment of refunds to the pharmaceutical sector. The companies cannot file refunds for January 2021 in February in the absence of any system. Contrary to this, sales tax has been deducted on the imported raw materials/inputs from January 16.

The industry wants refunds on the basis of “purchases” and not consumption based.

It took 1-2 years for full consumption of sales tax paid imported raw materials and subsequent sales of the finished products in the domestic markets. Therefore, the finance minister is very much serious to address the issue of refund payments on some kind of purchases based mechanism, he said.

There is so much pressure of the industry to give strike call, but when the finance minister is committed to resolve the issue there is no justification of strike.

However, if the refunds are not timely paid to the pharma industry, there would be severe shortage of medicines and life-saving drugs in the country, the PPMA chairman said.

The list of raw materials and inputs used by the industry would be shortly handed over to the FBR, he maintained.

Mansoor Dilawar stated that a special law needed to be approved for issuance of refunds to the pharma sector on purchases-based system. We fully understand that the FBR has its own limitations due to VAT system for payment of consumption based refunds. However, pharma industry has its own dynamics and we cannot afford to wait for long time for claiming refunds after consumption of raw materials and inputs used in the manufacturing of medicines and their subsequent sales.

During the last meeting between the FBR and the pharma sector, the industry said that the finance minister had advised his team and the FBR for the refunds on pharma purchase as 95 percent of the active pharmaceutical ingredients (APIs) supposed to be used for medicine and rest of five percent may be debated for tax.

The industry opined that, companies cannot afford stuck of huge investments, if sales tax implemented on consumption based.

The industry demanded GST refunds on purchase instead of consumption. The refunds on consumption basis means stuck of huge amount for minimum one year, which is out of reach for small companies. The industry assured the FBR that, all concerns of the FBR in this connection shall be addressed by the pharma industry based on the FBR favor with industry.

The FBR’s representative advised the industry to file the returns and let system take care of each individual case. The 17 percent sales tax on purchase and refunds on consumptions doesnot suit industry. He reminded saying of the finance minister during the last meeting regarding 90 percent APIs for pharma products only, so refunds on same should be immediately and the rest of raw material may be treated as per policy through consumption. He said take away of the said meeting was joint proposal that, favours both the parties.

The industry was of the view that the FBR portal is not accepting data submitted by few companies. IT department FBR immediately noted to correct the system with assurance for proper function.

The FBR official responded that, filling data timeline has been extended. Stock position of companies is mandatory, sources referred to the last meeting.

The FBR has already obtained list of items registered as drugs with the Drug Regulatory Authority of Pakistan (DRAP).

The FBR will 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.

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

Copyright Business Recorder, 2022