ISLAMABAD, March 21: The federal government on Thursday imposed 15 per cent general sales tax (GST) on all drugs — imported and locally manufactured/supplied — to fetch an additional revenue of Rs5 billion.

The levy would be applicable to all kinds of imported medicines as well as imported and locally produced raw materials for drugs.

At the same time, the import duty on raw materials for manufacturers of pharmaceutical active ingredients has been slashed from 10 per cent to 5 per cent.

This was made public through an ordinance on Thursday, which came into force immediately.

The slapping of GST on medicines was one of the strings attached to an International Monetary Fund (IMF) tranche of Poverty Reduction and Growth Facility (PRGF) to be disbursed later.

Riaz Ahmed Malik, Chairman, Central Board of Revenue and Major General (retd) Muhammad Asghar, Director General Health told a joint news conference that the fund generated through imposition of sales tax on pharmaceuticals and drugs will be diverted to the health-care budget of the government from the next financial year.

As a result, the government hospitals, dispensaries and maternity homes will benefit from increased allocations of government funds, they claimed.

The CBR chairman said that the manufacturers of medicines could also claim input credits for sales tax on ingredients.

Mr Riaz disclosed that the net revenue generated annually from the levy would be around Rs5 billion.

Justifying the levy, he said there was already a hidden incidence of up to 4 per cent sales tax in the manufacturing cost of medicines.

The sales tax was already applicable to electricity, gas, packing material for medicines such as cartons, vials and bottles as well as on services used by pharmaceutical companies such as telecommunication, printing, transportation of goods by air or through courier, he said.

To a question, chairman CBR clarified that all kinds of medicines, including homeopathic, would be liable to sales tax.

Elaborating further, he claimed that the prices of medicines might not rise by 15 per cent as a result of this step as several other factors worked behind pricing mechanism.

“The medicines, with different brand names having same medicinal ingredients, were sold for different prices in the market on the basis of prices approved by the ministry of health. Thus retail price of different categories of medicines will be increased by different manufacturing companies on the basis of anticipated competition for each category,” he remarked.

DG Health Muhammad Asghar admitted that with the levy of sales tax the prices of medicines would “definitely increase.”

He, however, said that prices of medicines may be de-regulated following the decision of de-regulation committee headed by commerce minister.

He said the prices of about 821 medicines were under government control while more than 26,000 stayed beyond this influence.