Karachi, July 22, 2023 – In a move to promote accessibility and affordability of alternative medicines, the Federal Board of Revenue (FBR) has extended the lower sales tax rate of 1 percent to the supply of alternative medicines/medicaments.
The FBR issued Circular No. 2 of 2023-24 to explain the enhancement of the reduced tax rate’s scope for these medicinal products.
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Prior to the Finance Act, 2023, S. Nos. 81 and 82 of Table-1 of the Eighth Schedule of the Sales Tax Act, 1990, provided a reduced rate of 1 percent on the import and supply of substances registered as drugs under the Drugs Act, 1976, and APIs (Active Pharmaceutical Ingredients) excluding excipients, used for manufacturing drugs registered under the Drugs Act, 1976, or raw materials for the basic manufacture of pharmaceutical active ingredients, subject to certain conditions.
However, the wording of the said S. Nos. did not encompass alternative medicines/medicaments, resulting in them being subject to the standard rate of sales tax at 18 percent.
To streamline the sales tax structure on raw materials, APIs, and drugs and to include alternative medicines/medicaments in the reduced rate regime of 1 percent sales tax, the FBR has substituted S. Nos. 81 and 82 of Table-1 of the Eighth Schedule. As a result, the 1 percent reduced rate of sales tax now applies to alternative medicines/medicaments, subject to specific conditions.
It is important to note that the substitution of S. No. 81 was effective from July 1, 2022, indicating that the reduced rate has already been in effect for over a year.
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This move by the FBR is expected to have a positive impact on the accessibility and affordability of alternative medicines, making them more accessible to a broader segment of the population. With the lower sales tax rate now applicable to these medicinal products, consumers may benefit from reduced prices, while manufacturers and distributors in the alternative medicine sector may also experience a boost in demand.
By extending the reduced tax rate to alternative medicines, the government is also recognizing the significance of these medicines in promoting healthcare diversity and catering to the preferences of individuals seeking alternative healthcare options.
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Businesses involved in the production and supply of alternative medicines should ensure compliance with the specified conditions to avail of the reduced tax rate of 1 percent. Adherence to the new tax rate and associated regulations is crucial to avoid any non-compliance penalties.
As the sales tax structure continues to evolve, stakeholders in the pharmaceutical and healthcare industries are encouraged to stay abreast of such regulatory changes to make informed business decisions and capitalize on opportunities arising from these amendments. The extension of the lower sales tax rate to alternative medicines reflects the government’s commitment to fostering a more inclusive and supportive healthcare environment in Pakistan.
