Amidst growing concern over the culture of tax exemptions, the National Board of Revenue (NBR) late last week issued yet another regulatory order waiving advanced income tax (AIT) on chemical compounds used for manufacturing the active pharmaceutical ingredients (APIs). The order will be effective from 20th of this month. The AIT at the rate of 5.0 per cent is now being collected from at least 400 chemical compounds used by the API producers.
The taxmen who are now in the midst of a sizeable shortfall in revenue earnings vis-a-vis the target set for the current financial year (FY) must not be enjoying the latest exemption move. Yet they have to bear with tax waiver directives that usually originate from the most powerful quarters of the government. In most cases, tax exemptions are aimed either to protect certain domestic industries from cheaper imports or boost exports or keep the prices of essentials within the reach of general consumers.
It is, however, important for a country like Bangladesh where the tax-GDP ratio is one of the lowest in the region to see that the beneficiaries of tax waivers do deliver results in line with the promises they make while promoting their respective cases. Allegations have it that many recipients of tax exemption benefits have not been true to their promises.
Hopefully, the pharmaceutical companies which would be using the AIT-free imported chemical compounds for production of APIs will be able to cut their cost of production. This is necessary to make available the drugs produced by companies to the general consumers at affordable prices and also help them compete in the international market. The local drug manufacturers who are prone to hiking the prices of their products very often blame the increase in prices of raw materials in the international market.
Bangladesh is still at the nascent stage as far as production of APIs is concerned. The API park built at Gazaria in Munshiganj does have space to accommodate more than 40 API producers. But only a few companies have so far ventured into this capital-intensive industry. The main problem with the development of API units here remains to be the absence of backbone or linkage industries for the API manufacturers who need raw materials at low cost.
So, tax exemptions may be a temporary and partial answer to the problem of API manufacturers as far as cost of raw materials is concerned. A long-lasting solution, it seems, lies in the establishment of raw material manufacturing units locally. The country needs to develop a strong raw material manufacturing base before the expiry of the extended period of TRIPs (trade-related intellectual property rights) agreement for pharmaceuticals.
Unfortunately, Bangladesh despite having all the potentials and opportunities could not develop its pharmaceutical industry until January 2016, the original expiry deadline for TRIPs. The progress has also been unsatisfactory though the extended deadline is due to expire in July 21. Fortunately, the WTO has granted another extension that is scheduled to expire on January 01, 2033. The country must not fail to make the best use of this period and build a strong pharmaceutical industry largely supported by an equally strong API manufacturing base.
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