SUNS4499 Tuesday 31 August 1999

Pakistan: 'IMF-tax' puts medicines beyond most pockets



Islamabad, Aug (IPS/Muddassir Rizvi) -- Health activists in Pakistan fear the imposition of 15% sales tax on medicines under pressure from the International Monetary Fund (IMF) will push drug prices beyond the reach of the common man.

The Sharif government agreed to slap the much dreaded tax on medicines and some other items of daily use in its ongoing negotiations with the International Monetary Fund (IMF) for the release of $280 million to Pakistan.

Sources in the Finance Ministry said that the government had to broaden the tax net after the IMF team raised reservations on realisation of the revenue target of more than Rs 400 billion ($7.84 billion) set by the government for the ongoing fiscal year.

The cash-starved government expects to generate Rs 35 billion ($0.68 billion) from the sales tax on medicines.

Other items that have attracted the new tax include petroleum products, packaged and branded food, fresh and frozen meat, yogurt, milk-based products, red chilies, ginger and turmeric.

"We are looking at a Rs 1,500 to 1,700 ($26 to $32) per month increase in the household budget," said Mujtaba, an accountant. "This is a tremendous rise if we compare it against the country's per capita income (annual $450)," he said.

But of particular concern to people is the expected rise in the price of medicines.

"We reject the government decision to slap tax on medicines as totally unwarranted and anti-people," said Dr Zafar Mirza, Executive Coordinator of The Network, an Islamabad-based health advocacy group.

"Already, Pakistan has around 50 million of people that have no access to medicines and this new step will further increase this inequity," he said.

Pakistan spends less than 0.8 per cent of GNP on health and nutrition, with most of the health budget going to non- developmental heads.

Total outlay on the health sector (federal and provincial) was Rs 20.8 billion ($0.4 billion) during 1998-99, with more that 75 per cent going to institutional costs.

According to a recent report on poverty, more than 41 million people out of the population of 135 million have no access to even basic health facilities.

The Network has called for agitations to protest the tax on medicines and other items. "According to our estimates the prices of medicines will rise by more than 35% as a result of the government's ill conceived decision under IMF pressure," Mirza said.

An official of the Ministry of Commerce said that the GST has been imposed on the local and imported raw and packaging material used by the pharmaceutical industry and not medicines at the retail level.

"So far our understanding is that the industry will absorb the tax burden and people will not be suffering," he said.

On the other hand, the pharmaceutical industry in Pakistan is already lobbying for an increase in the prices, arguing that they have not been allowed any raise in three years while production costs have gone up by 90 per cent since 1996.

"If we are forced to absorb the new tax, this will mean many of the transnational corporations (TNCs) will wrap up their operations in Pakistan," commented a pharmaceutical company's representative.

The Finance Ministry recently forwarded a proposal to the federal cabinet, asking for an increase in the drugs prices on the plea that low prices were hampering new investment in Pakistan.

The proposal wants an increase of between 25 to 40 percent on various categories of medicine.

When contacted, Zafar Mooraj, spokesperson of the Pharma Bureau, the umbrella organisations for 24 TNCs in Pakistan, said they are in touch with their tax lawyers.

"Our cost of production is bound to increase and we'll know exactly what effect this new government step will have once we get a detailed report from our tax lawyers," he said.

Under the Benazir Bhutto government, Parliament had exempted medicines from sales tax. The Sharif government, in contrast did not seek Parliament's approval before taxing drugs and resorted to executive fiat.

"The Sharif government does not have any respect for parliament and is authoritarian by nature as they have proved it on so many occasions......," said Tahir Mehdi, who works with Lok Sujjag, a consumer protection group in Lahore.

Health activists fear that the new tax will affect a majority of consumers in Pakistan since around 90 percent of medicine purchases are out-of-pocket in the country.

"The public sector hospitals only deliver around 10 per cent of drugs and how can they (government) say that consumers would not be affected by the 15 per cent tax," said Mehdi.

An official in the health ministry agreed with the contention of the health activists, saying that such arbitrary actions under international compulsions only damage the ongoing efforts for the people's welfare.

The international creditors only think in terms of economic growth, which has no meaning as long as it is not ensured that the benefits reach the grassroots, he said.