High taxes choking pharmaceutical sector
The CEO of the Chamber of Pharmacy, Anthony K. Ameka, has bemoaned increasing costs of medicines in the country and attributed this to the high level of taxes imposed on the importation of medicines.
In an interview with the B&FT, the head of the chamber disclosed that recent findings by an ad hoc committee revealed that the total percentage of taxes and charges that pharmacies incur on imported drugs add up to 96 percent.
“If you look at the findings the committee brought out, a breakdown of the taxes and charges shows that pharmacies are paying 10 percent on duty, 17.5 percent on VAT & NHIL, 0.5 percent ECOWAS levy, 0.5 percent network charges, 1 percent inspection fee, 1 percent on IRS, EDIF 0.5 percent, SIL 2 percent, Interest charges 2 percent.
“All these sum up to 35 percent. Other charges are: clearing charges, transport and haulage, and miscellaneous -- which amounts to 5 percent. Adding all these up take you to a whopping 40 percent on taxes and charges alone,” he said.
Translating this to real terms, the importer incurs 40 percent taxes and charges on essential medicines at the port before conveying them to the warehouse. The situation is further compounded when other expenses such as cost of supply and distribution come into the picture.
The report revealed that hedging against forex exchange fluctuations attracts a 5 percent tax, cost of finance for four months is 10 percent, storage cost (example: warehousing, special storage medicines needing 24 hours) regulation also incurs 5 percent cost, distribution cost is 5 percent, gross mark-up is 15 percent and overhead expenses, FDA registration, salaries and others attracts 11 percent cost. The accumulation of all these cost sums up to 56 percent. This takes the total percentage of the cost of clearing and wholesale distribution of an imported medicine to 96 percent.
According to Mr. Ameka, if these costs are translated into monetary terms, it will mean that any medicine imported into the country at US$100 will cost a retailer to buy the drug not less than US$196. “The retailer uses an approximate mark up of 40 percent to also cater for salaries, rent, professional fees, cost of finance, cost of utilities and regulatory fees and charges. The medicine thus gets to the patient at about US$274,” he added.
This means that for every imported medicine into the country, it ends up in hands of patients at a harrowing 174 percent of the actual cost the medicine was purchased by importer.
Mr. Ameka further stated that to address the situation government must push for implementation of the Common External Tariff (CET), which will eventually waive all taxes and charges on the importation of essential medicines and subsequently reduce the cost of imported drugs drastically.
“If duties and VAT are completely abolished on imported medicines and retail mark-up reduced to 30 percent, the final price consumers will be paying for drugs will be around US$212 compared to the current US$274, indicating 23 percent reduction in prices of medicines,” he said.
The Common External Tariff is one of the instruments of harmonising ECOWAS member-states and strengthening its Common Market. Article 3 of the ECOWAS Revised Treaty defines the aims of the community as promoting “cooperation and integration, leading to the establishment of an economic union in West Africa”.
The Minister of Finance in the 2015 budget statement and economic policy declared January 1, 2015 as the effective date for implementation. However, this could not materialise and was rescheduled to start on July 1, 2015.
The Chamber of Pharmacy commends government for the commitment it has showed in the CET by factoring it into the budget; but is however calling for imminent implementation of the policy, as it is causing a lot of anxiety among pharmacies and resulting in an unabated rise of prices for medicines.