The Federal Board of Revenue (FBR) has clarified that no new tax has been imposed on medicines. A clarification issued by the FBR revealed that the major supply chain below manufacturers and distributors is out of the tax net.
This chain consists of distributors, dealers, sub-dealers, wholesalers, and retailers.
As a documentation measure, nominal withholding tax at the rates of 0.1 percent and 0.5 percent on sales to distributors and retailers respectively is required to be collected by the sellers under the provisions of Sections 236G and 236H of the Income Tax Ordinance, 2001.
“This is not a tax on the medicines but on the incomes of the traders involved in the supply chain, and is adjustable against the final tax liability. This rate of tax is far below the tax liability of the traders involved in the wholesale and retail of medicines. The supply chain of medicines below the manufacturers and importers carries a profit margin of 25 percent to 40 percent,” added the statement.
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The major part of the supply chain is out of the tax net, which is why this documentation measure has been taken.
The Federal Board of Revenue (FBR) has explained that this documentation measure was applicable to the electronics, sugar, cement, iron and steel products, fertilizers, motorcycles, cigarettes, pesticides, glass, textile, beverages, paint, and foam sectors prior to the Finance Act, 2021.
The scope of these documentation measures has been extended to pharmaceuticals, poultry and animal feed, edible oil and ghee, auto-parts, tires, varnishes, chemicals, cosmetics, and IT equipment. The FBR has also explained that the prices of medicines are controlled by the Drug Regulatory Authority of Pakistan (DRAP) Regulations. The withholding tax collection measures related to the income of traders can, in no way, impact the prices of the medicines. pc advance tax pushes up drug prices significantly” appearing in Daily Business Recorder on 3 August 2021. The FBR has termed the information in the news story as ‘baseless and misleading’.
The news item has given a false impression that the prices of medicines have increased due to the withholding tax and that scarcity of certain drugs is also a result of the withholding tax.
