Drug makers, consumers have to wait to reap benefits from tax waivers

The proposed tax waivers for imports of some raw materials for FY25 will benefit both consumers and drug manufacturers only after the industry gets an environment conducive to business growth, stakeholders says.
The high dollar-taka exchange rate has escalated production costs, eroding profits. Besides, the cancer drugs that will enjoy tax waiver in imports of Active Pharmaceutical Ingredients (APIs) in FY25 are manufactured on a very small scale locally.
"We have already been experiencing a decline in profit margin due to the sharp devaluation of the taka. So, lowering the prices of products right away would not be possible," said Mohsin Hasan, deputy general manager of Square Pharmaceuticals.
According to the proposed budget for FY25, tax on imported APIs of Azithromycin (compacted or micronized or granules) will be reduced to 5 per cent from 15 per cent. Also, six more drugs have been included in the list of drugs used in cancer treatment for zero tariffs on API imports.

The tax benefit is intended to encourage domestic production of the life-saving drugs but cancer medicines are manufactured only by Incepta and Beximco Pharmaceuticals. Lower tax on imports will be reflected on product prices and profits of manufacturers only if production of the drugs can be scaled up, said company representatives. The cancer medicines will also be subject to withdrawal of customs duty and VAT.
Azithromycin is produced by almost all local drug makers.
According to Mr Hasan, consumers will be benefitted by the tax measures if the taka gets gradually strengthened against the dollar, bringing down import costs.
The finance minister also proposed zero tax on imports of 16 more types of raw materials for domestic production of APIs.
Listed drug makers, including Square Pharmaceuticals and Beximco Pharmaceuticals, produce a small quantity of APIs used in their production line of finished goods. Most drug ingredients are imported.
Square Pharma produces up to 7 per cent of APIs used in its production.
To help drug makers achieve self-sufficiency in producing APIs, the government took an initiative to establish an API industrial park in 2008 in Gazaria upazila of Munshiganj.
In 2018, the Ministry of Commerce formulated National Active Pharmaceutical Ingredients (API) and Laboratory Reagents Production and Export Policy to incentivize API production.
The policy support was aimed at facilitating production of 370 key API molecules for export and reducing reliance on raw material imports to 80 per cent by 2032 from 97 per cent in 2016.
Pharmaceutical companies have been allotted plots in the industrial park but none of them has yet begun operations there commercially because of space constraints and incomplete infrastructure.
Apart from tax exemptions on imports, customs duty and VAT have been withdrawn on dengue testing kits and on raw materials for the production of syringes, vials, IVs, and blood bags.
Muhammad Tarek Hossain Khan, company secretary of JMI Syringes & Medical Devices, said prices of medical devices might decline a bit for the tax incentives offered in the budget.
An official from Renata, wishing not to be named, said that even if manufacturing cost came down for cheaper imports of raw materials, it would not be reflected on profits since customs duty on imported equipment meant for laboratories remained unchanged or had been elevated in some cases.
Md. Alamgir Kabir, member secretary of the Consumers Association of Bangladesh (CAB), is also skeptical about the possibility that the tax benefits and waiver of other fees offered to drug makers will go down to the customer level.
There are no incidents when product prices were revised down after a rise in prices, he said.
"Eventually, incentives benefit the businesses. I think the businesses should think about the peoples' affordability."
However, the new products that are entitled to tax benefits are essential in nature and so if they become less expensive, more people will be able to afford them. That should increase the revenue of manufacturers of such drugs, leading to higher earnings.
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