The government's revenue authority raised the rate of Value Added Tax (VAT) on commissions of distributors and retailers of all types of pharmaceuticals.
Officials said the VAT wing of the National Board of Revenue (NBR) issued an order with policy guidelines Wednesday to this effect.
Drug industries have to pay additional Tk 0.40 VAT on commissions of the traders from January 1, 2015.
VAT officials will estimate value addition to drugs by 16 per cent instead of existing 13.33 per cent from next year under the latest order.
Pharmaceutical industry-insiders said the increase in VAT rate may cause hike in prices of medicines as end-users or consumers eventually have to shoulder the increased tax although producers are paying it directly in line with the NBR edict.
However, they said the increase in drugs prices, if revised upward, "might be insignificant as it is a nominal raise".
Currently, a consumer has to pay Tk 20 as VAT for purchasing medicine worth Tk 100. They will have to pay an additional amount of Tk 0.40 as VAT if the drug administration increased the prices.
The NBR estimates additional Tk 500 million in VAT a year with the revision of value-addition estimation of medicine.
Officials said the VAT wing has been collecting 2.0 per cent VAT on drug dealers' commission estimating 13.33 per cent value addition on the item.
Tax officials said the NBR collects VAT on raw materials of drugs at import stage. But, local producers can claim rebate or adjust the paid VAT.
On the other hand, VAT on retail prices, determined by the drug administration, of drugs is also in place. Â
According to the drug administration, the drug industries pay 16 per cent commissions to the drug distributors and retailers but pay VAT on 13.33 per cent.
The retail prices of drugs are determined in two components: indicative prices and commissions of retailers and distributors.
Indicative price is determined 84 per cent of retail price while 16 per cent of distributors and retailers' commissions.
In 2001, the NBR imposed VAT on 10 per cent of the commissions borne by pharmaceutical industries. Later, the VAT wing extended the VAT on 3.33 per cent of the rest of the commission.
Currently, the VAT men estimate 13.33 per cent value addition of drugs and collect the tax on it. The rest 2.67 per cent remained out of VAT net.
In the order, the NBR issued a policy guideline on payment of VAT by pharmaceutical industries, clarifying its price declaration, assessment, marketing and other issues.
A senior NBR official said the field-level offices are quite confused over process loss and potency compensation level of ingredients of drugs.
"The NBR policy clarified the issue to resolve complexities," he said.
Acceptable limit of process loss and potency loss of drugs would be 5.0 per cent in case of injection (ampoule), liquid vial, injection (vial), large volume. For tablet, capsule and other medicines it would be 4.0 per cent. Â
The NBR policy guidelines say the drug administration will set the maximum retail price of drugs based on the trade price. "There must be maximum retail price (MRP) quoted on the pack."
VAT would be imposed at 4.0 per cent at source in case of supply of drugs through tenders by any trader, except producers or importers.
There are nine-point guidelines in the order of VAT wing.
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