Tax holiday for pharma ingredient makers till 2032

The National Board of Revenue (NBR) has decided to offer a tax holiday facility to the manufacturers of active pharmaceutical ingredients (API) and laboratory reagents till 2032, subject to complying with certain conditions.

The income tax wing under the NBR has made the move for the sector in line with the National API Policy on Monday.

API is the part of any drug that produces the intended effects and a tax holiday is a government incentive offering a tax reduction or elimination to businesses. 

NBR officials said the move aims to encourage local production of pharmaceutical items, as well as increase export.

The revenue board has come up with such an incentive to achieve self-reliance on active pharmaceutical ingredients (API) and laboratory reagents and to draw in foreign investments, according to sources familiar with the matter.

Currently, Pharma makers enjoy tax exemption on the production of raw materials locally until 2022.  Now the facility is being extended to 2032 on certain conditions, as per an NBR proposal to the finance ministry.

According to the NBR, to be eligible for the tax break, raw material manufacturers will have to spend 1% of their annual turnover on research and development.

Those who will manufacture three APIs or laboratory reagents will get a 22.5% cut in corporate tax, meaning that they will pay 7.5% in tax. Failing to conform to the conditions, non-listed companies will count a 30% regular corporate tax, while the listed ones will pay 22.5%, according to the NBR proposal.

If a company is penalised by any government regulatory authorities, such as the directorate general of drug administration, for manufacturing low-quality pharma raw materials in a given year, they will be stripped of the tax relief for that year.

According to Bangladesh Association of Pharmaceutical Industries, the country's pharma companies have a demand for raw materials worth around Tk6,000 crore, which is growing by 12% per year. Domestic companies currently manufacture raw materials worth Tk400-500 crore.

In 2018, the commerce ministry formulated the National Active Pharmaceutical Ingredients and Laboratory Reagents Production and Export Policy to incentivise API production. The API policy aims to produce 370 key API molecules for exports and cut reliance on raw material imports by 2032.

As per the policy, API manufacturers are now enjoying the VAT exemption until 2032.  

Besides, the producers get a 20% cash incentive if they add a minimum of 20% value. The conditions of value addition will be reviewed after 2026.

The APIs account for 30% of total drug costs in the case of small molecules and can go up to 55% for generic products.

Currently, Bangladesh meets 98% of the demand for finished-form pharmaceutical products locally. Despite being nearly self-sufficient in the area of finished drugs, the country depends on imports for more than 90% of APIs.