Pharmaceutical manufacturers have protested the proposal to move some of their products from the ‘zero rate’ to the ‘VAT-exempt’ regime.
Currently, medicines are zero-rated hence manufacturers can claim back any taxes charged in the production process.
The Tax Laws (Amendment) Bill, 2020, which is before the National Assembly Committee on Finance, seeks to move medicines, currently zero-rated, to tax-exempt.
Rohin Vora, chairman of the Federation of Kenya Pharmaceutical Manufacturers, said it would result in higher costs of medicine.
“This is going to increase the prices of medicine. When zero-rated, any operational input VAT paid by the manufacturer can be claimed back. Meaning that if we pay Sh16, we will be able to claim it,” he said.
“However, when exempt, we will not be able to claim the Sh16 which will be transferred to the customer. Our call is that whenever there is manufacturing, it is better to go to zero-rating.”
The proposal as per the Tax Laws (Amendment) Bill, 2020 - affecting the finished products - implies that local pharmaceutical manufacturers will not be able to recover the input VAT incurred in their operations.
Manufacturers pay tax on repairs and maintenance, laboratory expenses, services invoices, electricity, capital expenditure etc and will ultimately be forced to pass on these costs to the final consumer.
The local pharmaceutical manufacturers say it would be unfair to pass laws which cause an increase in the price of medicine at the height of the Covid19 pandemic.
The question they are asking is; “Do we want locally manufactured medicines to be more expensive for the common wananchi?”
Industry players say it would be prudent for the government to support the local pharmaceutical manufacturing sector, which is already providing employment to thousands, so that medicines are readily available.
Kenya’s local pharmaceutical manufacturing sector is currently the biggest and the leading pharma sector in the East and Central Africa region. It is looked at as a leader by the regional countries.
In the legislation, vaccines for human medicine as well as for veterinary medicine will be exempt from Value Added Tax (VAT).
This will also be the case of antibiotics – containing penicillin or derivatives, and medicines for treating respiratory diseases.
This will be the case of preventive medicines, ointments, and those for managing colds as well as other medication containing vitamins or other products put up in measured doses or in forms or packings for retail sale.
The tax changes are part of the country’s preparedness to cushion Kenyans from the adverse effects on the coronavirus, whose cases stood at 262 as of Sunday.
It will also affect the prices of basic household goods such as bread, LPG gas, and maize flour of certain categories.
The Finance committee chaired by Kipkelion East Joseph Limo has seized of the bill and is expected to present a report on its deliberations in the plenary on Wednesday.
