• Thursday, February 29, 2024
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Tax waivers yet to curb runaway drug prices

Tax waivers fail to fix Nigeria’s drug crisis

Despite applying tax waivers to ease Nigeria’s drug crisis at the level of importation of key production ingredients like APIs, drug prices remain stubbornly high as loopholes and bureaucratic hurdles in implementation prevail.

Yet, Nigeria is on the cusp of reintroducing tax breaks in a fresh bid to limit hurdles in the way of local pharmaceutical production, a move lauded but seen as failing without tackling the elephant in the room.

The Federal Ministry of Health (FMoH) is considering a multi-pronged approach under its Health Sector Renewal Strategy. This includes tax waivers for active pharmaceutical ingredients (APIs) and other drug inputs, slashing import duties and tariffs, and offering soft loans to manufacturers.

Tunji Alausa, minister of state for health and social welfare said the ideas were tabled at the first Federal Executive Council (FEC) meeting to address urgent needs, as well as medium and long-term solutions to pave the way for local industrialisation.

To that effect, a committee has been set up with the attorney general to develop an executive order to integrate the solutions.

However, tax waivers have always been in existence. In 2007, NIPC published investment incentives to stimulate private sector investment from within and outside the country. For example, the tariff structure for pharmaceuticals has been designed to discourage imports and stimulate local drug production.

Raw materials and finished pharmaceutical products are exempted from paying tax but it doesn’t happen at the stage where the Nigeria Customs Commission gets involved.

BusinessDay’s findings show that long bureaucratic delays often set into the process whenever manufacturers attempt to access these waivers, largely because the commission sometimes operates with conflicting interpretations of what drug input is eligible to get waivers.

This traps some sensitive materials longer than necessary at the ports, disrupting the supply circle for many producers.

The challenge has been cited by industry analysts as one of the factors driving the exit of some multinational companies with strong governance cultures as they can’t pass the cost of such anomalies to consumers.

However, most pharmaceutical businesses are forced to do so to realize their costs.

This in essence worsens the woes of manufacturers who already face as much as 60 percent increase in the cost of energy.

Emzor’s pharmaceutical campus at Sagamu for instance runs on a 3 megawatts diesel generator for its operations.

Former President Muhammad Buhari came up with the Chapter 99 policy which waves taxes on manufacturing input but still places a heavy tax on components of other value chains such as packaging materials, and machinery as high as 25 to 30 percent.

Some packaging materials that Nigeria cannot produce have as much as a 25 percent tax on them.

Gelatin capsules, for instance, which help to ensure accurate dosing of products for efficiency and efficacy have a 30 percent tax levied because Customs categorise them as agricultural imports.

Gelatin capsules are a common type of oral medication delivery system.

They are made from gelatin, a protein derived from collagen, found in animals’ bones and skin.

But finished products are allowed to enjoy waivers when the raw material manufacturers struggle.

Manufacturers have queried it saying the system makes local products uncompetitive with finished products imported from India and China.

Sammy Ogunjimi, the founder of Codix Group, a company that manufactures blood glucose meters and strips, earlier argued that while waiving import duties on raw materials and equipment for pharmaceutical manufacturing could be beneficial by reducing costs, it might also lead to corruption due to potential difficulties in obtaining the waivers.

They believe this is because such difficulties could incentivize people to find ways to circumvent the process, ultimately leading to corrupt practices.

As an alternative, he proposed eliminating import duties for these items to simplify the process and reduce the risk of corruption.

“Some of the raw materials I bring in have import duties attached and if I bring the finished version of the same product, the import duty is zero. How does that make sense?” Ogunjimi asks

Frank Muonemeh, executive secretary, of the Pharmaceutical Manufacturers Group called for the government to engage every actor involved in the value chain to achieve an agreement of purpose.

“The Assistant Control General of Customs Trade and Tariff should be in the room, the Ministry of Finance Trade and Technical Services, NAFDAC, and the Ministry of Trade and Investment should all be involved.”

According to the Health Federation of Nigeria (HFN), one the organisations that have been advocating for an optimised healthcare value chain supported by the private sector, the reintroduction of waivers marks a crucial step forward in addressing the shortage of essential medicines and the rising prices of pharmaceutical products.

Pamela Ajayi, HFN president told BusinessDay that local production is critical to ensure long-term health security, while additional measures including tackling infrastructure costs like power, access to forex, and diversifying local production to include specialty drugs are required.

“Also, local manufacturers will require targeted financial incentives and grants to foster innovation in the manufacturing landscape,” Ajayi said.

“There is also a need to address the spiralling inflation at the point of sale to the public is essential, ensuring that critical savings from manufacturers are passed along the entire value chain, including wholesalers and retailers.”