Bangladesh Association of Pharmaceutical Industries (BAPI) has demanded cancellation of the new calculation method of value-added tax for medicines to avoid ‘price hike’ of the life savings products. BAPI claimed the prices of drugs may increase due to new tax calculation method.
BAPI rather suggested the reinstatement of the previous method of VAT calculation for the sector in a recent letter to National Board of Revenue.
VAT wing of NBR on July 23 issued an order saying that VAT on medicine at both production and sales stage remained unchanged at 15 percent and 2.4 percent respectively like previous years. According to the order, VAT amount will be included within the retail prices of medicine and the manufacturers will have to pay VAT applicable at both manufacturing and trading stages.
NBR also stated that the maximum retail price of a medicine inclusive of VAT remains the same. But, the trade price of medicines at production stage has been reduced by 2.35 per cent.
BAPI claimed that the aggregated payable VAT rate would rise by 2.18 percent at production and trading stage due to new VAT calculation method. So, the prices of medicines will increase as drug makers will not bear the additional VAT and ultimately it will be passed on consumers.
BAPI also found that the chemist or pharmacy commission, 16 percent of the trade price, will go up to 18.40 percent 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.
In the letter, BAPI said that the manufacturers would have to follow back calculation process starting from maximum retail price to trade price at production stage to determine the payable VAT.
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. Hence, amount of VAT will be Tk 17.78 for the same MRP due to new calculation method.
The NBR order also gave a guideline on calculation VAT on pharmaceutical products at the manufacturing and trading stages and payment to the government exchequer so that the prices of medicines can remain unaffected.
Manufacturers also have to maintain accounts and submit VAT returns as per new VAT and Supplementary Duty Act-2012 and VAT and SD Rules-2016 both came into effect from July 1.
The new method will reduce the net sale price of a unit of medicine by 2.35 percent than the price set by DGDA, it said.
Manufacturers will have to increase trade price to keep its receipt unchanged which may create adverse impact on consumers as retail sale price will be increased, it added.
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.
Officials said that leaders of the association had held a meeting with NBR on the issue.
At the meeting, NBR chairman assured the drug makers to scrutinise their proposal and if necessary, amend the new VAT calculation method so that the prices of medicine were not increased due to any of its move.
Pharmaceuticals industry is the one of the booming sectors in Bangladesh with a market size BDT 205 billion with 98 percent of the market demand is met by the local companies.