Personal view: Poor countries must remove tax barriers to key medicines

Roger Bate | 29 May 2005
Daily Telegraph (UK)

Campaigns to raise awareness can sometimes give the impression that all we need is for some glamorous celebrities to click their fingers for the problem to be solved.

The campaign to get essential medicines for diseases such as HIV and TB to the poor has concentrated on pushing western drug companies to cut prices and western governments to increase aid.

It has worked. Drug prices have fallen and aid has increased, but the poor's access to drugs has hardly improved, and there is a shocking stumbling block. Governments receiving essential medicines (donated or cut price) are loading on taxes before pharmacies sell them to patients. With the spotlight on Africa and "ending poverty", this issue should have been on the agenda at the World Health Assembly in Geneva, but it wasn't.

Poverty and ill health were easy to identify at the various Aids clinics I visited in Lesotho and South Africa recently. Most privately treated patients do not receive government subsidies, and a month's supply of antiretroviral triple therapy is likely to cost R586 (£55). Of this, R72 (£8) is a sales tax paid to the South African government.

As she waited in the queue, Emma explained the struggle to pay for medicines. To her and many others, the sales tax means the difference between eating for the whole week or sometimes going hungry. As she told me: "My two children [who are HIV-positive but not on treatment] also don't have enough to eat."

It is the sovereign right of any nation to raise revenue as it sees fit. But according to a press statement from a group of respected non-governmental organisations (NGOs), "taxing the poorest and sickest in society seems like an odd choice for countries that have craved aid from the international community and demanded lower drug prices from western pharma companies".

Donor bodies are angry that their efforts to treat people like Emma are being undermined by the very countries they want to help. Legislation recently introduced in America by Senator Brownback of Kansas stipulates that "no US agency or department shall donate or otherwise supply medicines or medical devices... to a foreign country if such country imposes import tariffs or other import duties on such medicines or medical devices". The Geneva-based Global Fund to Fight Aids Tuberculosis and Malaria already inserts a similar clause in its donation policies.

The financial burdens that some countries choose to impose in taxes and tariffs are substantial: Kenya (38pc); Tanzania (37.5pc); Uganda (31pc); India (20pc); Nigeria (28pc); Brazil (27.6pc); Morocco (37.5pc) to name a few. These countries have a combined population of about 1.5billion people, with access to essential medicines ranging from 10pc in Nigeria to 66pc in Uganda. Economic analysis suggests that a 1pc reduction in taxes and tariffs will result in a 1pc improvement in access - not a trivial difference in such populations.

While India has more than five million HIV cases - the highest in the world - it also has one of the lowest world figures for access to medicines - at 35pc. This sorry state has begun to change under a new government following a reduction in total financial barriers from a breathtaking 61pc to 20pc - still high, but at least a move in the right direction.

Meanwhile, both Kenya (with 36pc access) and Uganda recently imposed 10pc import tariffs on medicines in line with East African Customs Union protocols. According to Dr Patrick Orege, director of Kenya's National Aids Control Council, the tariff issue is "problematic; this increase should be addressed urgently, so that we can meet our [treatment] goals." The treasuries of Kenya and Uganda remain silent.

Few southern African countries have tariffs but many have sales taxes. South Africa's is not the highest, but given that the survival rate of patients on antiretroviral drugs is strongly dependent on adequate nutrition, anything that lowers food intake undermines success. Emma's CD4 count (a measure of immunity) is improving but not as fast as her better-fed peers - a consequence of the tax on her drugs.

Dr Anban Pillay, director of pharmaceutical economy evaluations within the South African Department of Health, says the reduction or removal of VAT on medicines had been under discussion for some time. "We've called for this ourselves but there seems to be a number of reasons why the Treasury is not willing to do so yet," he said.

If the Brownback Bill gets through Congress, donations will become dependent on the removal of tariffs in the receiving countries. Directly and indirectly, the US will be donating well over £2billion in health aid this year (with a decent portion on drugs) so this should be a powerful incentive to finally remove these odious tariffs and taxes.

Gordon Brown says he wants to write off all British debt to Africa. Perhaps, as a quid pro quo, he can get African nations to remove financial barriers that harm their poorest.

Dr Roger Bate is a resident fellow of the American Enterprise Institute and a fellow of the Institute of Economic Affairs in London. His co-authored paper, Taxed to Death, was published by the AEI-Brookings Joint Centre.