Pharmaceutical Sector: PCDA Rejects Introduction to Tax Legislation – Enterprise & Finance

KARACHI: Pakistan Chemists and Druggists Association (PCDA) has opposed the government’s move to introduce the pharmaceutical sector in Section 236-G & 236-H of the Income Tax Act, which would require manufacturers and distributors to collect input tax on behalf of retailers and wholesalers Federal Finance Authority (FBR).

In a letter to Federal Finance Minister Shaukat Tarin, PCDA pointed out some anomalies in the federal budget for 2022 and drew attention to the proposal to include pharmaceuticals in Section 236-G & 236-H of the Income Tax Act.

According to the PCDA, the implementation of Section 236-H will put a heavy burden on the merchants who cover 6000+ retail stores (pharmacies) and it will be very difficult to collect data such as NTN and CNIC from all points of sale because there is no collection from NTN and CNIC, it is not possible to collect and report advance tax.

“It will be a hectic exercise to check the status of thousands of retailers as they are filing or non-filing accounts at the time of invoicing for charging 0.5 percent and 1 percent input tax to justify their sales,” Salahuddin said Sheikh Chairman PCDA in the letter.

He said the exercise will also require additional staff or consultants for the proper collection of taxes.

The proposed high penalties will also add to business costs, which are already higher from just delivering medicines, requiring urgencies and repeated deliveries, and maintaining temperature sensitivity, he said.

Each manufacturer, distributor and retailer is responsible for their own taxes and that responsibility for tax collection and their lengthy reporting / monitoring is not the responsibility of the manufacturer or distributor, he added.

According to the PCDA, the pharmaceutical sector is regulated by DRAP under the Drug Act of 1976, and most manufacturers and distributors appear on the Active Taxpayers List (ATL). Due to the huge turnover, they are being declared as withholders and are already being monitored by the FBR for WHT under various sections like 153, he added.

The turnover of the pharmaceutical sector is very large and in Clauses 24-C & 24-D of the second appendix it applies at 0.25% sales tax on FMGC, subject to the condition of ATL in the sales tax. Since the GST does not apply to pharmaceuticals, the entire supply chain is not registered in sales tax. and in this situation, the pharmaceutical sector will benefit from the exempt department to avail of the reduced rates of 0.25 percent of the pharmaceutical sector sales tax registration requirement, the PCDA chairman said.

Sheikh said this move is contrary to the government’s policy of doing business easier and will open a new avenue for corruption; therefore this suggestion to include these sections in the Finance Act can be omitted in the greater interest of industry.

Copyright Business Recorder, 2021