KARACHI: A special sales tax regime has been introduced for pharmaceutical sector through Finance Act, 2022 by making amendments in Sales Tax Act, 1990.
As per the special tax regime manufacture or import of substances registered as drugs under the Drugs Act, 1976 shall be subject to 1 per cent sales tax with the condition that such tax shall be final discharge of tax in the supply chain and no input tax shall be allowed to the importer and manufacturer of such goods.
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According to explanation of Finance Act, 2022 released by PwC A. F. Ferguson & Co. prior to the amendments made through the Finance (Supplementary) Act, 2022, the entire pharma sector was exempt from levy of sales tax both at input as well as output stage, except for certain packing materials.
The aforesaid exemption regime was converted into a zero-rating regime for import and local supplies for finished items of pharma sector, however, sales tax was imposed at standard rate of 17 per cent on purchase / import of Active Pharmaceutical Ingredients (API).
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As a result, the pharma sector was allowed to claim sales tax refund on all purchases including APIs and provincial sales tax on services. A faster – pharma system for expeditious processing of refund claims for pharma sector was introduced.
These amendments were made with the aim to improve documentation of the pharma sector.
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The special tax regime for Pharma Sector has now been introduced whereby manufacture or import of substances registered as drugs under the Drugs Act, 1976 shall be subject to 1 per cent sales tax with the condition that such tax shall be final discharge of tax in the supply chain and no input tax shall be allowed to the importer and manufacturer of such goods.
Furthermore, APIs, excluding excipients, for manufacture of drugs registered under the Drugs Act, 1976 or raw materials for the basic manufacture of Active Pharmaceutical Ingredients shall also be subject to 1 per cent sales tax with no input tax adjustment and subject to certification by DRAP and certain procedural conditions.
