Tax break till 2032 for API producers coming
To stay eligible for the tax break, raw material suppliers will also have to spend 1% of their annual turnover on research and development
The National Board of Revenue (NBR) is likely going to continue a tax break till 2032 for local pharma raw material producers, subject to complying with certain conditions, such as introducing at least five new ingredients a year.
The revenue board has come up with such a facility to achieve self-reliance on active pharmaceutical ingredients (API) and laboratory reagent and to draw in foreign investment, according to sources familiar with the matter.
According to Bangladesh Association of Pharmaceutical Industries, the country's pharma companies have a demand for around 6,000 crore worth of raw materials, which is growing by 12% per year. Domestic companies currently meet raw materials amounting to Tk400-500 crore.
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According to law ministry sources, there is now a tax exemption in place on production of raw materials locally until 2022. The facility will now be extended to 2032 on certain conditions, as per a NBR proposal to the finance ministry.
Last week the law ministry gave its consent to the proposal, paving the way for the tax exemption, according to sources at the law ministry.
To stay eligible for the tax break, raw material suppliers will also have to spend 1% of their annual turnover on research and development.
Those who will manufacture three APIs or laboratory reagents will get a 22.5% cut in corporate tax, meaning that they will pay 7.5% in tax. Failing to conform to the conditions, non-listed companies will count a 30% regular corporate tax, while the listed ones will pay 22.5%, according to the NBR proposal.
If a company is penalised by any government regulatory authorities, such as the directorate general of drug administration, for manufacturing low-quality pharma raw materials in a given year, they will be stripped of the tax relief for that year.
A NBR letter sent to the finance ministry said domestic raw material production capacity will increase to Tk5,750 crore a year alongside creating around 5 lakh jobs if the new facilities are given to local manufacturers.
SM Saifur Rahman, managing director at Active Fine Chemicals Limited, told The Business Standard, "Bangladesh will not get the benefit of patent exemption under Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) from 2033. So, we will have to be self-sufficient in pharmaceutical raw material production."
In 2018, the commerce ministry formulated the National Active Pharmaceutical Ingredients and Laboratory Reagents Production and Export Policy to incentivise API production. The API policy aims to produce 370 key API molecules for exports and cut reliance on raw material imports by 2032.
As per the policy, API manufacturers are now enjoying the VAT exemption until 2032.
Besides, the producers get a 20% cash incentive if they add a minimum 20% value. The conditions of value addition will be reviewed after 2026.
The APIs account for 30% of total drug costs in the case of small molecules and can go up to 55% for generic products.
Currently, Bangladesh meets 98% of the demand for finished-form pharmaceutical products locally. Despite being nearly self-sufficient in the area of finished drugs, the country depends on imports for more than 90% of APIs.
Heavy reliance on raw material imports makes the pharmaceutical industry vulnerable to supply chain disruptions and price volatility, according to industry insiders.
At present, 15 local companies, including Square Pharma, Beximco Pharma, Active Fine chemicals Ltd, ACI Limited, Globe Pharma, Gonoshasthaya Pharma, Opsonin Pharma, Drug International and Eskayef produce around 40 APIs.
Among them, Active Fine chemicals Ltd is the only company listed on the capital market, which does not produce any finished medicine. Gonoshasthaya Pharmaceuticals Limited alone accounts for about 60% of APIs manufactured locally.
According to IQVIA, a US-based healthcare data science company, the country's pharmaceutical market surpassed Tk27,000 crore in 2020 with an annual growth of more than 10%. Bangladeshi companies also exported medicines worth around Tk1,500 crore in FY21. However, the country's top 10 companies sell about 71% of total medicines.
