ISLAMABAD: The Federal Board of Revenue (FBR) has conveyed to the pharmaceutical industry that the medicines not registered under the Drugs Act 1976 are chargeable to the standard rate of 17 percent sale tax.

Moreover, the FBR further declared that only drugs registered under the Drugs Act, 1976 are entitled to the reduced rate of one percent sales tax and no exemption/ reduced rate is available to any other drugs.

The FBR on Wednesday issued a clarification to the pharmaceutical manufacturers to clarify important issues of the industry.

The industry questioned what rate of tax should be charged from unregistered persons as most of the retailers/ distributors are un-registered. (1%+ 3% further tax).

The FBR responded that as per Sr. No 81 of Table-I of the Eighth Schedule to Sales Tax Act, 1990 manufacture or import of substances registered as drugs under the Drugs Act, 1976 shall charge sales tax @1 percent.

This is subject to the conditions that: (i) Tax charged and deposited by the manufacturer or importer, as the case may be, shall be final discharge of tax in the supply chain (ii) No input tax shall be adjusted by the manufacturer or importer.

Moreover, as per section 3(1A) of the said Act further tax @ 3% shall be charged, levied and paid where taxable supplies are made to a person who has not obtained a registration number, or he is not an active taxpayer.

The industry has raised a question that the tax has been imposed on drugs manufactured and registered under The Drugs Act, 1976 so what will be the rate of sales tax on drugs registered under DRAP ACT, 2012.

The FBR responded that as per Sr. No 81 of table-I of the Eighth Schedule to Sales Tax Act, 1990 reduced rate of sales tax @1% is available subject to conditions that: (i) Tax charged and deposited by the manufacturer or importer, as the case may be, shall be final discharge of tax in the supply chain (ii) No input tax shall be adjusted by the manufacturer or importer. It is clarified that only drugs registered under the Drugs Act, 1976 are entitled to reduced rate of 1% whereas no exemption/ reduced rate is available to any other drugs.

The industry asked the FBR to clarify if the medicines not covered under the Drugs Act 1976 are still exempt?

The FBR responded that the medicines not registered under the Drugs Act 1976 are chargeable to a standard rate of sale tax @17% and all applicable provisions of Sales Tax Act, 1990 will also apply, accordingly.

Copyright Business Recorder, 2022