Pharmaceutical sector “FASTER-Pharma” unable to file sales tax refund claims

ISLAMABAD: Pharmaceutical sector unable to file first sales tax refund claims under new “FASTER-Pharma” after withdrawal of 160 billion sales tax exemption rupees from January 16, 2022.

The government has asserted that Rs 251 billion out of a total of Rs 343 billion in tax exemptions, withdrawn in the Complementary Finance Act 2022, will be refunded/adjusted to the pharmaceutical sector, importers of capital goods, raw materials and local article suppliers.

The tax experts said company registrar that the FBR started to collect the sales tax on the import of pharmaceutical raw materials used in the manufacture of medicines from January 16.

Pharmaceutical companies are now entitled to file their first claim for reimbursement in February 2020.

The Federal Board of Revenue (FBR) asserted that “FASTER-Pharma” will issue sales tax refunds within 48 hours on the importation of raw materials/inputs actually consumed in the manufacture of finished goods, that is i.e. drugs.

Pakistan Pharmaceutical Manufacturing Association (PPMA) Chairman Qazi Mansoor Dilawar said company registrar that to date, no mechanism has been devised for the payment of reimbursements to the pharmaceutical sector. Businesses cannot file refunds for January 2021 in February in the absence of any system. Contrary to this, sales tax was deducted on imported raw materials/inputs from January 16th.

The industry wants reimbursements based on “purchases” and not on the basis of consumption.

It took 1-2 years for the full consumption of sales tax paid on imported raw materials and subsequent sales of finished products in domestic markets. Therefore, the Minister of Finance is very serious about addressing the issue of reimbursement payments on some sort of purchase-based mechanism, he said.

There is so much pressure from industry to call a strike, but when the finance minister has pledged to fix the problem, there is no reason to strike.

However, if reimbursements are not made timely to the pharmaceutical industry, there will be a severe shortage of drugs and life-saving drugs in the country, the PPMA chairman said.

The list of raw materials and inputs used by the industry will soon be handed over to the FBR, he said.

Mansoor Dilawar said a special law needs to be approved for issuing reimbursements to the pharmaceutical sector on the purchase-based system. We fully understand that FBR has its own limitations due to the VAT system for paying consumption based refunds. However, the pharmaceutical industry has its own dynamics and we cannot afford to wait long to seek reimbursements after the consumption of raw materials and inputs used in the manufacture of drugs and their subsequent sales.

During the last meeting between the FBR and the pharmaceutical sector, the industry stated that the Minister of Finance had advised his team and the FBR for reimbursements on the purchase of pharmaceutical products, because 95% of active pharmaceutical ingredients (API ) supposed to be used for medicine and remainder of five percent can be argued for tax.

The industry felt that companies cannot afford huge investments if sales tax is implemented on consumption.

Industry demanded GST rebates on purchase rather than consumption. Consumption-based reimbursements mean a huge amount for at least a year, which is out of reach for small businesses. The industry assured the FBR that all concerns of the FBR in this regard will be addressed by the pharmaceutical industry on the basis of the favor of the FBR with the industry.

The FBR representative advised the industry to file the declarations and let the system deal with each individual case. The 17% sales tax on purchase and consumption rebates are not suitable for the industry. He recalled telling the Minister of Finance at the last meeting regarding 90% of APIs for pharmaceuticals only, so refunds on these should be immediate and the rest of the raw material can be processed according to the policy by through consumption. He said that the conclusion of the said meeting was a joint proposal which favors both parties.

Industry was of the view that the FBR portal does not accept data submitted by a few companies. The FBR IT department immediately noted to fix the system with the assurance of proper operation.

The FBR official replied that the deadline for filling in the data had been extended. The stock market position of companies is mandatory, sources quoted at the last meeting.

The FBR has already obtained the list of items registered as medicines from the Medicines Regulatory Authority of Pakistan (DRAP).

The RBF will issue refunds on the importation of raw materials and inputs used in the manufacture of medicines/drugs registered with the DRAP.

No sales tax refunds would be issued on items not registered as drugs with DRAP.

Consumption-based refunds are issued after the manufacture and final supply of the finished products to the market.

Copyright Business Recorder, 2022