ISLAMABAD (Kashmir English): The government plans to provide substantial tax relief measures in the pharmaceutical sector in the upcoming budget, which is likely to be presented in the FY2026-27 period.
In an interview with the government, sources revealed that the government would scrap the 3% value-added tax on imports of finished pharmaceutical and diagnostic goods under the Twelfth Schedule.
It will help bring down the burden of taxes on pharmaceutical firms. In the prevailing scenario, the total effective tax rate stands at around 4% in the context of a price-controlled market. Moreover, it goes against the desired 1% tax scheme under the Eighth Schedule.
Authorities have observed that the pharmaceutical sector holds a lot of promise in terms of growing opportunities in healthcare and exports. Nonetheless, the prevailing taxation scheme hinders investment and expansion. Furthermore, it causes pressure on the exporting entities.
Tax experts have recommended performance-based tax concessions for pharmaceutical firms that operate in the export market. They propose tax rebates based on the level of yearly export growth.
The proposed rebate would include 5% tax credit on a 5-10% growth rate. Similarly, 10% rebate on a growth rate of 11-15%, 15% rebate for a 16-20% growth rate, and 20% for more than 20%.
Further, there have been suggestions to implement reforms in order to facilitate investment. This includes the provision for accelerated depreciation for export-oriented investments other than machinery. There are recommendations for incentives related to research, development, compliance, and internationalization.
Moreover, it has been suggested that the corporate tax rate is still relatively higher than that of regional competitors, and reduces competitiveness as well as foreign investments. There is also a recommendation for zero sales tax on DRAP-registered pharmaceutical products.
Finally, they recommend tax exemptions on packaging material and diagnostic kits in order to lower costs.
