ISLAMABAD: The Pakistani federal government is taking a serious look at an initiative which could see the cancellation of a tax levied on essential medicines that has stealthily brought up the price of lifesaving drugs by almost four times what patients had to bear just one budget cycle ago. This proposal, under serious consideration before Finance Minister Aurangzeb delivers his budget speech for 2026-27, relates to the 3% VAT levied on imported medicines under the 12th Schedule.
The new tax levied by Topline Securities on life saving drugs has significantly brought about the increase of total taxation of essential imports by 4%, which is three times more than what it used to be; only 1% as a final tax was imposed previously through GST. This is an exponential rise, and has direct implications for the import and retail prices of the drugs.
What Abolishing the Tax on Medications Saves the Consumers of Pakistan
By abolishing the tax on life-saving medications, one can ensure that the price burden is reversed by Pakistan’s pharmaceutical logistics chain at each stage, right down to its end-consumers. Import charges will fall; the wholesale prices of medications will be lower for wholesalers. The result will be an environment that is conducive for reducing retail prices of medications in pharmacies. It is a benefit that will be received immediately once the policy is implemented.
Apart from providing relief to consumers from higher costs in the form of retail prices, the removal of taxes on the medicines that can save lives is also beneficial in ensuring adequate economics for the supply chain. This will result in more distributors being able to import drugs even in cities or regions where demand is insufficient owing to higher taxation. The removal of taxes will improve the economics of the supply chain.
Patients’ Current Burden of Excess Payment Due to the Taxation on Essential Medicines
The amount of effective tax placed upon essential drugs under current conditions is about 4% for imported finished pharmaceutical products, compared with only 1% previously in the case of the final GST taxation system. While such figures may not seem very high at first glance, they accumulate over time due to the need to continually purchase medicine for chronic diseases.
For patients suffering from cardiovascular diseases, diabetes, cancer, and other ailments that necessitate the consumption of specialty drugs from foreign markets, the total effect of this tax on lifesaving medicines will be felt through their monthly budgets. In the case of patients unable to afford alternatives to the clinically recommended medicine due to poverty, the 4% tax is a consistent challenge that could be addressed by the budget proposal.
ALSO READ: Auto Industry Warns Govt Against Massive Tax Breaks for Hybrid Vehicle Imports
Taxation of Life-Saving Drugs Comes Along With Digital Payment Limitations Policy
The government is moving in two directions to ensure the implementation of the taxation scheme. While implementing the tax on life-saving medicines proposal, the government is also considering a parallel proposal of placing limitations on payments through cash, particularly large amounts paid for purchasing goods from retail shops, food joints, and petrol pumps.
Restrictions on cash use provide electronic records of business transactions that are currently lost to the system due to cash flows that are not being recorded. This enhanced record keeping helps achieve the government’s goal of broadening the tax base of Pakistan through transparency rather than higher taxes, thereby gaining from the informal economy without placing further pressure on those who are paying their fair share of taxes in Pakistan.
Impact of IMF Programme on Tax on Life-Saving Drugs
Tax exemption on life-saving drugs comes at a cost for Pakistan within the context of the IMF programme. The cancellation of the 3% VAT results in less tax revenue from drug imports in the short term.
This calculation by the government is underpinned by the economic logic. Reduced costs for medicines will help cut down health care expenses for the family budget, enhance adherence to treatments of chronic diseases, and mitigate the costs in terms of forgone productivity due to illnesses that go untreated or are under-treated among Pakistan’s labor force. The benefits of reduced health expenditure and an increased labor force productivity will eventually outweigh any shortfalls in VAT revenue forgone from pharmaceutical products.
It will be up to Finance Minister Aurangzeb to decide through his budget speech whether relief is available to the patients of Pakistan in the coming fiscal year or not. It will become known from this speech only that either the tax will be removed now or later.
