New tax scheme could push up cost of medicine

You could soon pay more for medication if a proposal by the government to raise taxes on imported pharmaceutical products is implemented.

The Kenya Association of Manufactures (KAM) and the Federation of Kenya Pharmaceutical Manufacturers (FPKM) are lobbying the government to include the proposal to increase taxes in the VAT Amendment Bill, which seeks to increase taxes on the ingredients, as well as the finished products entering the country.

The proposals are aimed at boosting local manufacturing, one of the four main deliverables of President Uhuru Kenyatta’s last term.

Tariffs are taxes imposed by governments on goods entering a country. Non-tariff barriers are any trade measures other than tariffs imposed by governments to restrict imports.

“While tariffs have been reduced, non-tariff barriers have increased dramatically worldwide. The situation has further been compounded by more than 300 trade agreements between countries and 930 tariff schemes applied by 132 countries,” reports the World Trade Organisation reports (WTO).

IMPOSE TARIFFS

According to the WTO’s September 2007 policy brief, The impact of tariff and non-tariff barriers on essential drugs for the poorest people, about 39 per cent of countries do not impose tariffs on finished pharmaceutical products. Of those that do, 76 per cent apply tariffs of less than 10 per cent.

A suggestion by the Global Health Council (the WTO’s health arm), to harmonise the tariffs has emboldened local manufacturers, who feel the market has long been skewed in favour of cheap imports, thus hurting local production.

FKPM has requested for increased duties on a smaller list, as well as another request for an increase in verification fees for imported medicines.

EXTRA COSTS

But Dr Daniela Munene, CEO of the Pharmaceutical Society of Kenya (PSK), says they do not favour rushed implementation of the proposals, since that would do more harm than good to the country.

“The proposals might appear positive from a manufacturing point of view since they are meant to stimulate and expand local pharmaceutical production in line with the “Big Four” agenda. On the other hand, a tax increase could end up hiking the price of medicines since suppliers will pass the extra costs of doing business to the consumer, posing a serious challenge to universal health care which is another ‘Big Four’ pillar,” she said.

This proposal could signal good news for local manufacturers, who have long complained that cheap imports are making it hard for them to sustain profitable operations.

The stakeholders suggest a comprehensive assessment of the impact of an increase in inspection fees to 12 per cent and the introduction of inspection duties of 25 per cent on imported medicines.

In a document entitled “Regional Pharmaceutical Manufacturing Plan of Action (EAC PRMPOA)” the stakeholders called on the government to support local production of drugs.

She added it could also make generic medicines more expensive, further increasing the costs for poor Kenyans who may not be able to afford the original brands.

MOLECULE IDENTITY

“The purchase of most medicines in the country is mostly dependent on what the doctors prescribe for their patients. Most medics prescribe drugs by brand as opposed to their chemical name or molecule identity, and the patients trust these prescriptions and brands,” she said.

The medic said patients will maintain their loyalty to preferred brands despite increased prices.

Dr Munene said the patients also prefer drugs made abroad and are unlikely to switch preference to relatively little-known local products.

“Even as we work to convince doctors to use local medicines in their management of health complications, we must also convince patients that the products are just as good as the imports they are used to,” she said.

Dr Munene was quick to say the PSK supports the development of local industry but said the current capacity is very low.

FILL HUGE GAP

 “Local manufacturers supply a small part of the total products consumed in the country. I doubt whether they have capacity to fill the huge gap that would be created by pricing the imported medicines out of range through tariffs and high taxes geared at discouraging importation,” said the PSK boss.

She said the pharmaceutical industry was still largely dependent on imports despite the Health Act of 2015 which zero-rated imports of medicines and raw materials for medical products’ manufacture.

She says the state should now focus on encouraging more investment in the local manufacturing industry

“Our industry is skewed in favour of imports and the manufacturing pillar should provide incentives to investors intending to set up industries for local production of pharmaceutical products,” said the medic.

SURVEILLANCE

According to Director of Inspection, Surveillance and Enforcement at Pharmacy and Poisons Board Dr Jacinta Wasike, the local pharmaceutical manufacturing sector can only meet 28 per cent of Kenya’s pharmaceutical demand currently.

Speaking to the press in an earlier interview during the opening of Bangladeshi firm Square Pharmaceuticals’ factory site in Athi River’s Export Processing Zone, Dr Wasike had indicated that the remaining 72 per cent is covered by imports worth an estimated USD 600 million (Ksh 61.3 billion) with a regular import growth of 11.45 per cent in the last three years on average.

At the East African Community level, there has been a request by manufacturers for duty to be imposed on a list of products containing approximately 36 simple formulas or molecules or medicinal mixtures which the region has sufficient capacity to manufacture.

Also suggested is an automatic immigration quota limiting foreign firms to hire just five expatriates at the initial stage of each project they undertake within the region.