Govt reconsiders VAT on pharmaceuticals

A source close to the pharmaceutical manufacturers has indicated that government is considering a re-assessment of the imposition of 17.5percent Value Added Tax (VAT) on locally-produced drugs.

This follows a written appeal by the umbrella-body of drug manufacturers, the Pharmaceutical Manufacturers Association of Ghana (PMAG), to the Ministry of Finance and Economic Planning and a subsequent meeting with the President to discuss the impact of the revised VAT law.

“So far, the indications are that government wants to do something about it,” the source told the B&FT.

The Value Added Tax (Amendment) bill was approved by Parliament on November 15, 2013, received a Presidential assent on 30 December 2013, and was gazetted on December 31, 2013.

It increased the standard VAT rate from 12.5% to 15%. The National Health Insurance Scheme Levy (NIHL) charged on goods and services supplied in or imported into Ghana and collected with VAT remained unchanged at 2.5%.

The new VAT Act also expanded its scope to include the manufacture or supply of pharmaceuticals.

Drug producers currently pay VAT on 66 items out of about 200 different materials used for manufacturing drugs locally, and are later reimbursed by the Ghana Revenue Authority (GRA).

However, producers have often complained about the GRA’s lengthy bureaucratic procedures which often cause undue delays in reimbursement of manufacturers.

The pharmaceutical industry in the country is under serious strain from cheap, finished imported pharmaceutical products mainly from Asia. High cost of credit, poor electricity supply, and expensive imported raw materials are some of the challenges bedevilling the sector.

“The pharmaceutical industry is one of the important industries in the country. We should not do anything to make it uncompetitive,” the source said.

There is also lingering concern in the industry about manufacturers’ inability to benefit from a “marginal preference” scheme for local drug producers in both international competitive bidding (ICB) and national competitive bidding (NCB) for public procurement tenders.

The marginal preference scheme provides a 15 percent discount on bidding fees to local pharmaceutical manufacturers. But producers are not benefitting mainly due to their lack of World Health Organisation (WHO) pre-qualification to produce certain drugs, which means they cannot bid to supply them.

Pharmaceutical manufacturers are seeking Value Added Tax (VAT) exemption for 66 of about 200 different materials used for manufacturing drugs locally.

The Pharmaceutical Manufacturers Association of Ghana, the umbrella-body for local drug manufacturers, has tabled proposals to Government for total VAT exemption on selected raw materials imported for pharmaceuticals production.

PMAG has further advocated a fund for the industry, using savings from malaria medicines that government currently purchases at subsidised prices under a financing initiative of the Global Fund to Fight Aids, Tuberculosis and Malaria.