The pharmaceutical industry of Pakistan has officially submitted its tax proposals for the upcoming budget 2025–26, urging the government to address long-standing tax-related challenges that have adversely impacted the sector’s sustainability and affordability of medicine.
The proposals include key recommendations aimed at restoring the sector’s financial stability and enhancing its contribution to national healthcare.
A primary demand from the pharmaceutical industry is the restoration of the zero-rated sales tax regime. Currently, drugs registered with the Drug Regulatory Authority of Pakistan (DRAP) that fall under Schedule 8, Serial 81 and 82, are subject to a 1% sales tax with no input tax adjustment allowed. This means the entire burden of tax is absorbed by the manufacturer due to distributors being unable to claim input tax. The industry argues that this leads to a 2% increase in costs for manufacturers and impacts their pricing structure. The budget proposal suggests that the pre-Finance Act 2022 tax position be reinstated to bring back the zero-rated regime, which would help reduce costs across the supply chain.
Another issue highlighted in the budget proposals is the high sales tax on packing materials and diagnostic kits, currently taxed at 18%. Since these are not included in Serial 82 of the Eighth Schedule, they are not eligible for tax relief. The pharmaceutical sector believes this anomaly results in inflated production costs and undermines the affordability of essential diagnostic services.
The industry has also raised concerns about pending sales tax refunds under the FASTER Pharma system. When the sector moved from an exempt to a zero-rated regime in January 2022, refunds were promised within 72 hours, as per Rule 391 of the Sales Tax Rules, 2006. However, many refunds remain unpaid, severely affecting the industry’s working capital. The budget recommendations call for immediate clearance of these refunds to stabilize cash flow.
Moreover, the pharmaceutical industry seeks the removal of the 3% value-added tax (VAT) on imported finished drugs and diagnostic products, which currently falls under the Twelfth Schedule. They argue that since essential medicines are price-regulated, this VAT unjustly inflates their cost and contradicts the 1% final tax liability under the Eighth Schedule.
Lastly, the budget submission calls for extending the tax exemptions granted to charitable hospitals under Entry No. 166 of the Sixth Schedule to also include government hospitals and institutions, ensuring equitable access to affordable healthcare services.