Tax breaks, cash incentives, low-cost loans on the table for API investors

Infograph: TBS

Summary:

• Govt considers tax breaks, cash incentives, and low-interest loans for API
• Local API production could save Bangladesh $1 billion annually
• Bangladesh imports 90% of APIs, increasing costs and foreign dependency
• API production reduces supply chain risks and stabilizes medicine prices
• 2018 API policy offers tax breaks but faces bureaucratic hurdles

The interim government is weighing a set of incentives – including VAT and tax exemptions, cash incentives, and low-interest loans – to spur investment in the production of Active Pharmaceutical Ingredients (APIs), the key raw materials for medicines.

The move comes as the government struggles to attract entrepreneurs to a dedicated industrial park set up for API manufacturing.

If implemented, this initiative could be a game-changer. Industry insiders estimate that Bangladesh could save $1 billion in foreign currency annually by reducing its reliance on imported APIs. Not only would this ease pressure on the country's foreign exchange reserves, it could also make medicines more affordable for consumers.

According to finance ministry sources, the ministry sent a letter to Bangladesh Bank on 2 January, seeking a decision on these proposed incentives. Following the ministry's directives, the central bank had a meeting with the Bangladesh API and Intermediaries Manufacturers Association on Thursday to discuss the issue further.

Industry insiders say the government introduced a policy on APIs in 2018, which offered income tax exemptions to producers of raw materials used in medicine manufacturing until 2032

Currently, Bangladesh imports nearly 90% of its APIs, leading to an annual outflow of over $1 billion. Establishing a robust domestic API industry could significantly cut this dependence, ensuring a more sustainable and cost-effective supply of raw materials for the pharmaceutical sector.

Moreover, local API production would shield the industry from global supply chain disruptions and price fluctuations – critical factors in maintaining stable medicine prices and securing the country's health care needs.

The urgency of this initiative was underscored in a meeting held in November last year between the finance ministry and the Bangladesh API and Intermediaries Manufacturers Association. Led by Finance Adviser Salehuddin Ahmed, the discussion centred on the challenges and opportunities in API production and the necessary policy support to drive investment in the sector.

"In line with the decisions from the ministry's meeting, we have sent a letter to the central bank, and they will review the matter and make a decision," Farzana Jahan, senior assistant secretary of the finance ministry, told The Business Standard.

SM Saifur Rahman, president of the Bangladesh API and Intermediaries Manufacturers Association, told TBS, "To ensure the sustainable growth of the API sector and to compete effectively with global leaders like China and India, we want the immediate implementation of the 2018 API Policy."

He also called for low-cost refinancing facilities and affordable loans from commercial banks.

He said, "Since basic raw materials must be imported from India or China, even if our entrepreneurs invest, their costs will be high. As a result, after the LDC graduation in 2028, medicine prices will increase. Therefore, we have demanded loans at a 4% interest rate, along with exemptions from taxes and VAT.

"Additionally, we have requested uninterrupted power supplies in the industrial park."

Govt's API policy

Industry insiders say the government introduced a policy on APIs in 2018, which offered income tax exemptions to producers of raw materials used in medicine manufacturing until 2032. However, to avail this benefit, the National Board of Revenue (NBR) imposed various conditions, trapping the incentives in bureaucratic red tape.

However, despite the 2018 policy, the NBR issued a notification only by the end of 2021 in this regard.

The NBR stated that companies already producing APIs and laboratory reagents will be eligible for tax exemptions starting from 1 July 2016.

According to the NBR, to enjoy the tax holiday from July 2022 to 2032, manufacturers must produce at least five APIs and laboratory reagents annually, otherwise they will not be eligible for the benefit.

However, entrepreneurs demanded that the NBR offer unconditional incentives according to the API policy.

Dr Choudhury Mahmood Hasan, former professor of pharmacy at Dhaka University, told TBS, "Bangladesh currently imports nearly Tk10,000 crore to Tk12,000 crore worth of finished pharmaceutical products every year. If the API sector were developed locally, this money would stay within the country, and we wouldn't have to rely on India or China.

"If the API sector could be developed through subsidies or interest-free loans for five years, it would benefit the country's pharmaceutical industry in the long run. This would also lead to lower medicine prices."

Dr Md Akter Hossain, director of the Directorate General of Drug Administration, told TBS, "Assisting the development of the API sector will be beneficial for the country. If raw materials for medicines are produced locally, the cost of medicines will decrease."

4 companies ready for production in API Industrial Park amid challenges

The Bangladesh Small and Cottage Industries Corporation (BSCIC) has established the park on 200 acres of land in Gajaria, Munshiganj, with 42 plots designated for 21 industrial facilities.

So far, four local manufacturers – ACME Laboratories, Healthcare Pharmaceuticals, Ibn Sina Pharmaceuticals, and Unimed-UniHealth Fine Chemicals – have set up factories within the estate.

Although these companies are set to begin commercial API production, a gas shortage has delayed the activation of the centre effluent plant, and there is no electricity connection to the factories.

Despite these challenges, Ibn Sina Pharmaceuticals aims to begin operations within the next couple of months.

Meanwhile, ACME Laboratories, Healthcare Pharmaceuticals, and Unimed-UniHealth Fine Chemicals have their facilities and equipment ready for production within the industrial park.

Md Shamsul Alam, head of plant at Ibn Sina API Industry Ltd, said, "Ibn Sina Pharmaceuticals will start API production next month. However, the company may face obstacles if it does not receive government support in this process."

He said, "To produce APIs, we need to import mother chemicals from India or China, and their prices are very high. If we bring raw materials at those prices, the cost of the finished product will also be high, making it difficult for the company to generate real revenue.

"Any raw materials imported for APIs should be tax-free. If we can bring them at a lower price through any government initiative, API production will proceed smoothly."

He added, "If the prices of finished products from China or India are lower, no pharmaceutical company will buy our products. Therefore, we must stop importing these materials. Some parties from India and China have artificially raised the prices of raw materials but lowered the prices of finished products to prevent the growth of the API sector in Bangladesh."

Shamsul Alam also mentioned, "Continuous electricity is essential for API production, with proper voltage. It takes two to three days to complete the production process. Without continuous electricity, costs will rise if we rely on diesel generators. Additionally, all types of licensing procedures need to be simplified."