Pharmaceutical companies outraged at RBF advice to cut drug prices by 20%

KARACHI: The pharmaceutical majors have slammed the Federal Board of Revenue (FBR) for its president’s suggestion to cut drug prices by up to 20%, saying it would put pressure on the industry’s working capital.

FBR President Muhammad Ashfaq Ahmed had said pharmaceutical companies had been assimilated to exporters for the purpose of releasing reimbursements within 72 hours, adding that “drug prices in the retail market are expected to fall by around 20 percent” .

Dismayed by the statement, the drug companies questioned the role of RBF in lowering product prices.

“I have worked in at least half a dozen countries and nowhere have I heard that tax commissions could lower product prices,” said Khalid Mahmood, CEO of Getz Pharma.

Mahmood alleged that the pharmaceutical industry was being pushed while other industries such as real estate became “more attractive” having “black money”.

He added that the pharmaceutical industry was capital intensive and his company had invested 20 billion rupees in the past four years. The new taxation would have hit the working capital of the industry, he added.

President FBR said pharmaceutical companies have been assimilated to exporters for the purpose of releasing refunds within 72 hours.

Therefore, pharmaceutical companies will be able to claim refunds on GST paid as input tax on packaging materials, utilities, etc.

“The prices of drugs in the retail market are expected to decline by about 20%,” the chairman of the RBF said in a press release.

“The pharmaceutical industry represents 600 billion rupees and 20% means 120 billion rupees,” said Zahid Saeed, group general manager, Indus Pharma. “Does the government have that kind of money? He asked himself.

“It’s all in the air and there is nothing solid behind these statements,” he added.

Pakistan Pharmaceutical Manufacturers Association (PPMA) President Mansoor Dilawar said this would put the industry’s working capital under pressure, adding that although the industry’s end products are located at 95%, 95% of raw materials in the industry are imported.

Speaking about the recent proposal to impose up to 17% GST on many items, he said, “Charging 17% sales tax at the input stage would put pressure on the industry’s working capital.

The president added that companies should take loans from banks etc. to fill the void, which would increase production costs.

“In this case, there is a good chance that companies will stop making drugs that have low margins and therefore these drugs would be out of stock on the market,” he explained. He sees prices remain unchanged because of the new RBF regime, contrary to what the latter claims.

An RBF official said the tax and then reimbursement initiative would help restrict the manufacture of counterfeit drugs in the country, therefore, potentially helping legal entities in the industry.

On the flip side, PPMA’s Dr Kaiser Waheed said he has yet to get his refunds since 2004.

“They would get you stuck in different things when you would ask for refunds,” Waheed said adding, “Nobody is asking for refunds because they would ask you for different things like audits etc. and the refunds would end up getting stuck.”

“They should tell us right away that the IMF asked us to do it and we couldn’t resist. It is not necessary to make irrelevant statements.

Mahmood of Getz Pharma said the manufacture of fake drugs cannot be limited by taxation or by the RBF. Restrictions on counterfeit drugs could be made by enforcing the law, he suggested, claiming that the makers of counterfeit drugs have “political condescension.”

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