FBR offers to choose the cost of loans
In a bizarre move, the Federal Board of Revenue has offered drug companies the option of choosing the cost of the loans these companies must take out due to a delay in clearing their true reimbursements through the tax system.
The FBR’s decision is tantamount to admitting that the cost of doing business for drug companies has increased due to the imposition of a 17% sales tax on their raw material through a mini-budget and subsequent delay in the payment of their refunds. .
According to a communication between the association and the FBR, it was decided that the FBR and the Pakistan Pharmaceutical Manufacturing Association would jointly develop a mechanism to estimate the rising cost of doing business based on changes in the sales tax regime. .
The official communication further revealed that the two parties would find ways to reduce the additional impact on the cost of doing business to the extent of the mark-up that would result from additional borrowing as working capital due to the repayment cycle of improved active pharmaceutical ingredients (API).
The chairman of the FBR had floated the idea of choosing the interest cost over the loans companies will take out to meet their day-to-day expenses, said PPMA chairman Qazi Mansoor Dilawar. However, he said the proposal was not feasible.
In the budget, the government imposed a 17% GST on APIs, but promised to refund the amount within 72 hours.
But the FBR does not have the legal authority to determine the interest cost of loans companies take out to offset the impact of blocked repayments on their working capital. This also reflects the fact that the claimed tax collection included taxpayers’ money which is used to show higher incomes.
After resisting the temptation to use taxpayer refunds to inflate revenue for some time, the FBR again began delaying refunds due to a shortfall in monthly targets.
US Deputy Trade Representative for South and Central Asia Christopher Wilson said on March 7 that US companies had complained about the blocking of their tax refunds by the FBR.
Last month, the FBR made a presentation to the Minister of Finance on the revenue collection prospects for the current financial year. In its presentation, the FBR had informed the Minister of Finance that the annual collection would get a boost of about Rs 75 billion due to a delayed mechanism in the payment of tax refunds to pharmaceutical companies.
Dilawar said the FBR currently owed Rs2 billion in refunds to PPMA members for the period from January 16 to February 15.
There are about 600 pharmaceutical companies in Pakistan and of these, about 269 are members of PPMA. The pending refund amount is expected to be well over Rs 2 billion since the figure excludes refunds from non-PPMA members.
During a speech on The Review, Qazi Dilawar warned that drug prices could skyrocket if FBR could not develop a mechanism to pay blocked reimbursements in a timely manner.
FBR issued rules that state that drug companies would only receive refunds after the drugs were consumed, but the companies require their refunds to be cleared at the API purchase stage.
The PPMA held a meeting with FBR Chief Commissioner Lahore Tariq Chaudhry on Saturday who agreed that businesses should get refunds at the procurement stage, the PPMA chairman said. But Chaudhry looked for time to work out a mechanism.
Mansoor said manufacturing companies buy raw materials in bulk to save costs, and sometimes it takes about a year to fully utilize raw materials.
FBR spokesman Asad Tahir was not available for comment. He had been asked to comment under which law the FBR was empowered to pay interest rates on loans that a company would take out for its working capital needs.
On Tuesday, Finance Minister Shaukat Tarin held another meeting with a delegation from the Pakistan Pharmaceutical Association.
Tarin had reassured that the government was fully committed to solving the problems of the pharmaceutical industry. The Minister of Finance further directed the Chairman of the FBR to take possible measures for the settlement of the pharmaceutical industry’s problems related to the API sales tax in coordination with the representatives of the pharmaceutical industry.
However, like previous meetings, industry issues remained unresolved.
Published in The Express Tribune, March 20and2022.
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