Facilitating production of APIs

Thursday, 9 September 2021

The recent decision taken by the National Board of Revenue (NBR) to extend tax holiday facility to pharmaceutical firms manufacturing active pharmaceutical ingredients (APIs) and laboratory regents is indeed an important move. According to industry insiders, this waiver --- a well targeted move as well as a much sought-after fiscal incentive ---  will have a very positive impact on the manufacture of some of the most vital pharma ingredients towards meeting both local and overseas demands. Although some leading pharmaceutical companies in the country do produce APIs, the volume compared to the demand is insignificant.   

The country's API policy had earlier emphasised the need for tax holiday as a required incentive for successful API production. Now that the NBR is set to issue necessary statutory regulations order (SRO) in this regard, it is still not known for how long the waiver will last. Normally, the NBR offers it for 10 or 20 years. Earlier, the NBR had waived advance income tax on the import of API raw materials till June 30, 2024, and in 2019, it offered exemption from payment of value-added tax on import of the same. All these are likely to go hand in hand in boosting API production in terms of reducing import and boosting production for domestic needs and exports. In the API policy, the government has set a target of achieving self-sufficiency in producing 370 important API molecules necessary for exports. However, at the moment, the country needs to import $1.3 billion worth of raw materials including APIs for the pharmaceutical sector annually.

An active pharmaceutical ingredient (API) is considered a 'magical' substance in a pharmaceutical drug that is biologically active. However, some medications may contain more than one active ingredient. Medicinal drugs are used primarily for their active ingredients. API, which is a drug itself, is the main substance of the tablet or the liquid in which it is suspended or other material that is pharmaceutically inert. In recognition of the need for highly sophisticated methods and technology required for the purpose, the government years ago had planned to establish an API park which though hit snags at the beginning is now reportedly progressing fast to accommodate 40 pharma plants soon.

With the fiscal facilities now in place, some of the major roadblocks have been smoothened. Observers believe that a boost to API production will ease procurement of raw materials quickly without having to face the annoying lead time and costly import for local pharmaceutical companies. Over and above, given the global market size of APIs --- to the tune of $135 billion, according to reports -- there does exist a highly lucrative investment opportunity in the country that can attract foreign investors. In this context, it is important that fiscal incentives, especially the tax holiday facility, continue for a sufficiently long duration. Meanwhile, equipping the API park at Gazaria with all required amenities including CETP and other facilities should be given a top priority.