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New VAT calculation fallout

Industry frets about possible drug price hike

Doulot Akter Mala | Published: August 25, 2019 09:53:56 | Updated: August 25, 2019 14:01:15


Pharmaceuticals industry insiders are worried that prices of drugs may increase after the changes in tax calculation method under the new VAT law.

They said while trade prices (TP) of medicines at the manufacturers' level will go down, the payable VAT will go up due to this calculation method.

The industry will have to revise their TP upward with the approval of the state-run Directorate General of Drug Administration (DGDA) to adjust the payable VAT on them, they added.

As per an order of the VAT wing under the National Board of Revenue (NBR), issued on July 23, 2019, The maximum retail price of a medicine inclusive of VAT remains the same. But some changes have been made in trade prices and VAT. The trade price of medicines at production stage has been reduced by 2.35 per cent.

The industry insiders have also found chemist or pharmacy commission (16 per cent of the trade price) will go up from the current fiscal year (FY) compared to that of the previous year. Moreover, the government will get Tk 0.38 more VAT on a medicine worth Tk 100 at manufacturing stage.

According to the VAT law-1991, payable VAT of a pharmaceutical product, having Tk 100 trade price and Tk 133.40 Maximum Retail Price (MRP), was Tk 17.40 per unit.

In the new VAT and Supplementary Duty (SD) law-2012, effective from July 1, 2019, payable VAT for the product will go up, claims the Bangladesh Oushad Shilpa Samity in a letter sent to the NBR.

Voicing the deep concern, the Samity recently sent a letter to the NBR calling for an amendment to the process of VAT calculation method.

The Samity leaders also held a meeting with the NBR high-ups to resolve this issue and got positive response from NBR chairman Md Mosharraf Hossain Bhuiyan, industry sources said.

They said the NBR high-ups assured the pharmaceuticals industry of amending the collection process in an attempt to keep prices of medicaine stable.

In the letter, BAPI Secretary-General SM Shafiuzzaman, said the pharmaceuticals companies might have to increase the trade prices to continue its net prices of drugs, approved by the DGDA.

He said the net sales prices of the companies as per approved prices of DGDA will be 2.35 per cent less if calculated with the new method.

The method, he alleged, may also impose VAT on VAT as per the mentioned rate of fraction of taxes in the back calculation.

"Aggregate amount of payable VAT on production and business-stage will be increased by 2.18 per cent compared to that of the previous year," the BAPI letter claimed.

As the pharmaceutical companies will not bear the burden of additional VAT on medicine, its prices for consumers would go up, the letter said.

BAPI said the NBR's order for drug price determination method is not consistent with the price fixation policy framed by the drug administration directorate.

All of the prices of drugs including its trade price, MRP with VAT is determined by the DGDA.

The pharmaceuticals companies will have to obtain new price approval through upward revision of the huge numbers of drugs, which may take six months to one year, the BAPI said.

Collecting from the chemists, the pharmaceuticals companies deposit Tk 4.0 billion VAT annually to the public exchequer.

In the new law, the NBR ordered collecting VAT on the approved MRP by DGDA through back calculation method from business-stage to production stage determining the supplying prices.

On May 28, 1992, a policy guideline for fixation of prices of drugs has been framed, which is still followed by the pharmaceuticals industries.

As per the policy, chemists are entitled to get 16 per cent commission on trade prices of drugs, which were not followed in the recent order of the VAT wing.

Pharmaceuticals industry insiders said they have not increased the prices yet after the passage of budget for FY 2019-20.

However, BAPI secretary-general Mr Shafiuzzaman said some of the prices of drugs went up before the budget for current fiscal after an increase of prices of raw materials, known as Active Pharmaceuticals Ingredients (API), and also the closure of some 2,000 such factories in China.

He said the association requested the NBR to follow the previous process of VAT calculation in order to keep the prices of medicine stable in the local market.

Pharmaceuticals industry is the one of the booming sectors in Bangladesh with a market size Tk 205 billion.

Some 98 per cent of the local demand for medicine is met by the local companies.

doulot_akter@yahoo.com

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