In a bizarre move, the Federal Board of Revenue has offered the pharmaceutical companies to pick the cost of loans that these firms have to take due to a delay in clearance of their genuine refunds by the tax machinery.
The decision by the FBR is tantamount to an admission that the cost of doing business of the medicines producing companies has gone up due to imposition of 17% sales tax on the their raw material through a mini-budget and subsequent delay in payment of their refunds.
It was decided that FBR and Pakistan Pharmaceutical Manufacturing Association would jointly evolve a mechanism to estimate the hike in cost of doing business on the back of amendments in the sales tax regime, according to a communication between the association and the FBR.
The official communication further revealed that both sides would find ways and means to abate the additional impact in the cost of doing business to the extent of markup which would result from additional borrowing as working capital due to enhanced Active Pharmaceutical Ingredients (API) refunds cycle.
The FBR chairman had floated the idea of picking the interest cost against the loans that the companies will take for meeting their day to day expenditures, said PPMA Chairman Qazi Mansoor Dilawar. However, he said that the proposal was not feasible.
In the budget, the government had slapped 17% GST on the APIs but promised to refund the amount within 72 hours.
But the FBR does not have legal authority to pick the interest cost of loans that companies take to offset the impact of blocked refunds on their working capital. This also reflects that the claimed tax collection included taxpayers’ money that is being used to show higher revenues.
After resisting temptation to use taxpayers’ refunds to inflate revenues for quite some time, the FBR has again started delaying the refund payments due to shortfall against the monthly targets.
Assistant United States Trade Representative for South and Central Asia Christopher Wilson said on March 7 that US companies had complained against blockage of their tax refunds by the FBR.
Last month, the FBR had given a presentation to the finance minister about the prospects of revenue collection in the current fiscal year. In its presentation, the FBR had informed the finance minister that the yearly collection will get a boost of about Rs75 billion due to a delayed mechanism in paying tax refunds to the pharmaceutical companies.
Dilawar said that the FBR currently owed Rs2 billion in refunds to the members of the PPMA for the period of starting from January 16 to February 15.
There are roughly 600 pharmaceutical companies in Pakistan and out of those, around 269 are the members of the PPMA. The pending refund amount is expected to be far higher than Rs2 billion since the figure is exclusive of non-PPMA members refunds.
While speaking at Express News show, The Review, Qazi Dilawar warned that the medicines prices may phenomenally go up, if FBR could not develop a mechanism to timely pay stuck up refunds.
FBR has issued rules which state that pharmaceutical companies would receive refunds only after the medicines are consumed but the companies are demanding that their refunds should be cleared at the purchase stage of the APIs.
The PPMA on Saturday held a meeting with FBR Chief Commissioner Lahore Tariq Chaudhry who agreed that the companies should get refunds at the purchase stage, said the chairman PPMA. But Chaudhry sought some time to work out a mechanism.
Mansoor said that the manufacturing companies buy the input material in bulk to save cost and sometimes it takes about a year to fully utilise the input materials.
FBR spokesman Asad Tahir was not available for comments. He had been requested to comment under which law the FBR was empowered to pay interest rate on the loans that a company will take for its working capital purposes.
On Tuesday, Finance Minister Shaukat Tarin held another meeting with a delegation of the Pakistan Pharmaceuticals Association.
Tarin had reassured that the government was fully committed to addressing the issues of the pharmaceutical industry. The finance minister further directed FBR chairman to take possible steps for the settlement of the issues of the pharmaceutical industry related to sales tax on APIs in coordination with the representatives of the pharmaceutical Industry.
However like the previous meetings, the industry’s issues remained unresolved.
Published in The Express Tribune, March 20th, 2022.