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Budget 2022-23

VAT on domestic API sales likely to be exempted

20 May 2022

Al Amin :
The government is now going to exempt Value-Added Tax (VAT) from the supply stage of Active Pharmaceutical Ingredients (API) to make the raw material for making medicines easily available in the country.
Currently, local API manufactures have 15 per cent VAT on their sales or production stage.
According to the National API and Laboratory Reagents Manufacturing and Exports Policy Local API manufactures are getting VAT waiver on its raw materials import since 2019.
Beside that the government has also given the sector a tax holiday facility till 2032, subject to complying with certain conditions.
Officials of the National Board of Revenue (NBR) said they have proposed for exempting VAT on API at supply or sale stage with conditions.
The NBR has come up with such a facility to achieve self-reliance on active pharmaceutical ingredients (API) and laboratory reagent and to draw in foreign investment, they said.
If the government exempts domestic manufacturers from VAT, the local API producers will be able to supply to the pharmaceutical companies at competitive prices, they said.
Importing similar APIs, the businesses have to pay 15 per cent VAT at the import stage, they added.
Currently, several pharmaceutical companies including Active Fine Chemical are producing the raw materials in the country.
According to Bangladesh Association of Pharmaceutical Industries, the country's pharma companies have a demand for raw materials worth around Tk 6,000 crore, which is growing by 12 per cent per year. Domestic    companies currently meet raw materials amounting to Tk400-500 crore.
Bangladesh will not get the benefit of patent exemption under Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) from 2033. So, Bangladesh needs to be self-sufficient in pharmaceutical raw material production and the government is also giving the tax facilities.
Earlier, being eligible for the tax break, raw material manufacturers will have to spend 1 per cent of their annual turnover on research and development.
Those who will manufacture three APIs or laboratory reagents will get a 22.5 per cent cut in corporate tax, meaning that they will pay 7.5 per cent in tax. Failing to conform to the conditions, non-listed companies will count a 30 per cent regular corporate tax, while the listed ones will pay 22.5 per cent according to the NBR.
S M Shafiuzzaman, Secretary General of Bangladesh Association of Pharmaceutical Industries, thanks the initiative.
"Domestic investment will be encouraged as well as export will also go up for the initiatives," he told The New Nation on Thursday.
In 2018, the commerce ministry formulated the National Active Pharmaceutical Ingredients and Laboratory Reagents Production and Export Policy to incentivise API production. The API policy aims to produce 370 key API molecules for exports and cut reliance on raw material imports by 2032.
As per the policy, API manufacturers are now enjoying the VAT exemption until 2032.  
Besides, the producers get a 20 per cent cash incentive if they add a minimum 20 per cent value. The conditions of value addition will be reviewed after 2026.
The APIs account for 30 per cent of total drug costs in the case of small molecules and can go up to 55 per cent for generic products.Currently, Bangladesh meets 98 per cent of the demand for finished-form pharmaceutical products locally. Despite being nearly self-sufficient in the area of finished drugs, the country depends on imports for more than 90 per cent of APIs.

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