Support local producers by taxing imported drugs

Nazeem Mohamed | 01 Jan 2008
New Vision
Tanzania recently introduced a 10 % levy on imported drugs, claiming that the tax would compel the patients to pay higher prices for the drugs. Some analysts argued that a 10% increase in the cost of medicines would make the difference between life and death of the 21.7% of the population that suffers from malnutrition.

However, the Uganda Pharmaceutical Manufactures Association (UPMA) are finding it increasingly difficult to compete with foreign importers in the absence of a level paying field.

Despite World Trade Organisation guidelines, India and China provide significant subsidies on exports as a way of supporting their domestic industries. This has resulted in astronomical growth of the pharmaceutical sector in their countries and has led to the dumping of their excess products in liberalised economies like Uganda.

About 85% of the medicines consumed in Uganda are imported increasingly from China and India yet Ugandan manufacturers could easily provide essential drugs if given encouragement from the Government.

The misconception that any duty imposed on imported drugs would automatically increase the price to patients needs to be corrected. A survey carried out to assess the impact of a 10% levy demonstrated that there would be no impact on the price to patients since the retail price sector currently enjoys more than 100% margins.

Stakeholders recommend that the National Drug Authority (NDA) should levy a fee of 10% on 15-20 selected finished pharmaceutical imported products (out of over 650 imported products) where there is sufficient local capacity to manufacture.

Countries like Tanzania, Nigeria and Ghana have seen the importance of supporting the national drug-manufacturing sector by levying duties on imports of pharmaceuticals. Ghana has banned the importation of selected drugs where there is capacity to manufacture locally. This has resulted in a rapid growth of the manufacturing sector in those countries.

The East African Customs Union protocol signed in 2004 by the heads of Uganda, Kenya and Tanzania included a common external tariff of 10% on all finished pharmaceutical products imported from outside of East Africa. This Protocol was expected to be implemented in 2005 and would support local manufactures provided the authorities can put adequate systems in place to prevent misappropriation of imports by the traders.

There remains an excellent opportunity for the local manufacturing of the essential drugs provided the Government and some NGOs can commit to procuring the locally manufactured products.

The Tanzanian Pharmaceutical Industries Association (TPIA) lauded their government for imposing 10 per cent import duty on medicines and dismissed as baseless claims by importers that the tax would increase the prices of drugs.

The chairman of the TPIA, Ramadhani Madabida, told the media in Dar-es-Salaam that those who questioned the rationale behind the re-introduction of 10% duty on selected imported pharmaceutical products based their arguments neither on fact nor on the general interest of the public.

"Those opposing the tax are actually against the national goal to manufacture locally as many essential medicines as possible," he noted.

About 50% of the country's requirements for medicines are met through direct procurement by the government, which is exempted from the tax. Another 10 per cent medicines are also exempted from duty as they are for malaria, TB and HIV/AIDS.

This leaves only 40% of the total, of which around 20 per cent is being met through local production and the balance of 20 percent is through imports by traders thus means 10 per cent levy would be applicable to this balance of 20%only.

Even when the government decided to have zero tax in the 2005/2006 budget; prices for imported pharmaceuticals never went down.

The writer is the CEO of Kampala Pharmaceutical Industries and the spokesperson of UPMA.