Pharma industry is in dire straits with rising costs

Karachi: With Pak rupees falling like nine pins against the US dollar and ever-increasing costs of APIs, freight and imposition of sales tax, the pharma industry is gasping. 

The pharmaceutical industry was exempted from sales tax but in  January 2022, Pakistan Tehreek-e-Insaf (PTI) government imposed a 17 per cent sales tax for documentation purposes only as it was to be refunded in its entirety. This step had an adverse effect on the cash flow of the companies that were already in dire straits because of a rising dollar.

The new government instead of taking up the swift refund of the sales tax imposed a 1% sales tax in addition to heavy taxes on active pharmaceutical ingredients (APIs) and other raw materials which have led to a spike in production costs. The cost of freight is at an all-time high with an unprecedented increase in utilities and HR costs.

Previously, pharmaceutical companies only paid tax on packaging materials. There was no sales tax on active pharmaceutical ingredients (API) or other raw materials.

According to the industry sources, the taxes imposed by the government led to a 45 per cent increase in production costs as a result many essential medicines, including life-saving ones and low-cost medicines, have disappeared from the market.

The industry has seen that many foreign pharmaceutical multinational corporations have left and the others are contemplating moving out of Pakistan. Sanofi Aventis Pakistan has already left the country and sold its plants to a local manufacturer and another prominent name Bayer is on the verge of closure.

The drug prices in Pakistan are regulated by the Drug Regulatory Authority of Pakistan (DRAP), which determines the maximum retail price of the medicine. With regulated price, the rising cost has to be absorbed by the companies and cannot transfer to the consumer. 

There was a 4-fold increase in the shipping charges and the Pakistani rupee continued to witness a downward trend. This led to a rise in the price of APIs and other materials.

Pakistan is now perceived by international investors as a country with high default risk amid the ongoing economic crisis.

In these uncertain times, thousands of patients may suffer due to a shortage of medicines as many brands have already disappeared from the market.

The Pakistan Pharmaceutical Manufacturers’ Association (PPMA) is demanding an increase of a minimum of 30 to 40 per cent by the government to ensure the availability of medicines as more and more companies will halt their production resulting in the non-availability of medicines.