DRAP must certify the item-by-item requirements of API and drug manufacturers, and second, no input tax must be adjusted throughout the supply chain.
By allowing a reduced rate of one percent sales tax on the import of all types of raw materials used for the fundamental manufacture of pharmaceutical active ingredients and pharmaceutical products starting on July 1, 2023, the government of Pakistan has significantly reduced the tax burden on the pharmaceutical sector.
Prior to now, all types of raw materials for pharmaceutical sector of Pakistan were exempt from the reduced rate of 1% sales tax. Similar to this, pharmaceutical raw materials with multiple uses were not subject to the minimum rate of one percent sales tax. The same inputs that have multiple uses can now be imported at a discounted rate of just 1% sales tax.
Under the updated Sales Tax Act, one percent sales tax would be applicable on the substances registered as drugs under the Drugs Act, 1976 and medicaments as are classifiable under chapter 30 of the First Schedule to the Customs Act, 1969 except the following, even if medicated or medicinal in nature, namely:- (a) filled infusion solution bags imported with or without infusion given sets; (b) scrubs, detergents and washing preparations; (c) soft soap or no soap; (d) adhesive plaster; (e) surgical tapes; (f) liquid paraffin; (g) disinfectants, and (h) cosmetics and toilet preparations. This substitution shall be deemed to have been made from July 1, 2022.
This is subject to the requirement that the tax collected and deposited by the manufacturer or importer, as applicable, serve as the supply chain’s final discharge of tax and that no input tax adjustments be made.
One percent sales tax would be applicable on the raw materials for the basic manufacture of pharmaceutical active ingredients and for manufacture of pharmaceutical products, provided that in case of import, only such raw materials shall be entitled to reduced rate as specified which are liable to customs duty not exceeding eleven per cent ad valorem, either under the First Schedule or Fifth Schedule to the Customs Act, 1969 or under a notification issued under section 19 thereof.
This is contingent upon two requirements: first, the DRAP must certify the item-by-item requirements of API and drug manufacturers, and second, no input tax must be adjusted throughout the supply chain. The DRAP must also provide Pakistan Customs Computerized System with all pertinent information in the case of import.