Increasing pharmaceutical exports

Boosting pharma exports
By Tahir Ali

(DAWN, Monday, 18 Oct, 2010)

http://news.dawn.com/wps/wcm/connect/dawn-content-library/dawn/in-paper-magazine/economic-and-business/boosting-pharma-exports-800

PAKISTAN’S low exports of pharmaceutical products at about $100 million can be significantly increased provided the local pharma sector is given incentives and relieved of regulatory burdens, industry sources say.

Though pharmaceutical exports have become the seventh largest manufacturing-based export segment, highest infrastructure and operating cost, inconsistent government policies, high duties, lack of research and development facilities, high interest rates, energy shortage and the poor security situation have obstructed efforts to raise exports to their potential.

Khalid Mehmood, chief executive of a national pharmaceutical company says the pharma industry was made to pay one per cent of its profit before tax (PBT) for the central research fund (CRF).

“We have been paying CRF for years without getting a single short or long-term benefit. No such thing is being levied on any other industry. Conversely, they are given support for setting up laboratories and R&D centres. The CRF must be eliminated if the industry has to grow,” he said.

Export insurance policy is required for protecting exporters from payment risks. While governments of the competing countries have devised protection mechanisms for their exporters, Pakistan has not. This should be done immediately,” he added.

Exports of pharmaceuticals are dependent on the capability of the manufacturer to obtain certification from WHO and other regulatory agencies of the importing countries.

“A pharmaceutical facility to qualify for accreditation by these agencies, requires at least Rs3-5 billion of capital expenditures and Rs200-300 million of operating expenses annually. This necessitates huge capital and profitability for the company,” he said.

“To be able to do that, prices of medicines should be deregulated. Ever since the Indian and the Bangladeshi authorities have done that, manufacturing plants in India and Bangladesh have gone up to 90 and four respectively while none has been set up in Pakistan, ” he informed.

Pakistan’s pharmaceutical exports are just around $100 million as against India’s exports of $11 billion which are expected to surge to $40bn by 2012.

To the fear that deregulation will increase the prices of medicines, he said, essential drugs, recommended by the WHO, should be regulated and their prices controlled. “This is being done in India and Bangladesh where only 74 and 109 molecules are on the controlled list of drugs. For all other products, the price is deregulated. Standard pricing should be adopted in the country,” said another expert.

“Some importing countries require a certificate of prices from the exporting country to establish price for imports. It harms exporters who cannot charge the higher prices prevailing in the external markets as the prices of drugs are low here and are mentioned on the registration letter. Higher price certificates should be provided to exporters only for exports,” he suggested.

Sources said exports can be increased if the quality of the products and the country’s regulatory framework are in line with the global and regional practices. “Drug regulatory requirements must be harmonised with those in ASEAN region provided prices of locally manufactured drugs are increased to their level and are deregulated. But how does Pakistan formulate a regulatory policy which is in line with the international best practices and yet it does not penalise the industry? One way is to form a pharmaceutical regulatory authority,” he suggested.

Pharmaceutical exporters need one-window fast-track facility.

“About seven days and sometimes weeks, are required for getting NOC for a consignment. Exporters would greatly benefit if one-window operation for export clearances and to expedite drug registration and clearance process is introduced,” he added.

The pharma industry also complains they have to pay five per cent workers’ profit participation fund (WPPF), and two per cent workers’ welfare fund (WWF). “Though it was meant for benefiting workers, they have least benefited from it. Industries in other countries are not taxed with the WPPF or the WWF. These should be eliminated as the tax slabs for the industry are already the highest in the world- around 35 per cent. On an emergency basis, at least the export revenue should be exempted from the two levies,” he added.

The industry will also benefit if the export freight subsidy (EFS) is introduced for it. “The EFS has been introduced for other industries in the trade policy but pharma industry has been ignored. Export development surcharge at 0.25 per cent should also be withdrawn immediately. Export refinance facility is currently in the ratio of 2:1. Performance requirement should be 1:1 as a number of countries in the region have this facility,” he desired.

As per regulation of State Bank of Pakistan vide circular No15 of August 15,, 2003 and subsequent circular No.9 of August 28, 2008, every exporting pharma company can retain 15 per cent of its sales proceeds in foreign currency account which can subsequently be used for foreign remittances and reimbursement of expenses etc.

“It is impossible to cater to huge international expenses with this amount. This is practically impossible in the initial years when expenses are high as against returns. Hence retention from 30—40 and 25—30 per cent of sales proceeds should be allowed for an exporting company having sales up to $10 million and more than $10 million respectively. This extension will not only help local exporters compete and survive in international market but also boost their exports,” he added.

As per regulation of FBR vide Sec No 152 (2), reimbursement of expenses by an exporting company to its representative office abroad is subjected to withholding tax at the rate of 30 per cent on every payment and in the case of double taxation treaty between Pakistan and exporting country, at 15 per cent of payment.

“Being reimbursement of expenses, these payments should be exempted from withholding tax and an appropriate provision be inserted in relevant section of the income tax ordinance to this effect,” he argued.

Pharmaceutical industry is providing direct and indirect employment to nearly four million people. It fulfills over 90 per cent of the country’s drug requirements. It saves huge foreign exchange as only less than 10 per cent of the medicines need to be imported. And it is fast moving towards 100 per cent self-sufficiency.

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