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Drug tax break needs simple way to reduce costs
Jacqui Pile
2005-05-05

Though the fight over medicine prices has gone to the highest court in the land, scant attention has focused on how much tax South Africans pay for their medicines. At 14% VAT, which earns government R1,4bn/year on prescription drugs alone, tax on medicines in a developing country such as SA could be reduced.

A report released this week, Taxed to death, by the Joint Centre for Regulation Studies, a US free-market thinktank, shows that access to medicine may have more to do with taxes and tariffs imposed by governments, than high prices charged by the pharmaceutical industry.

And with only 2% of the medicines on the World Health Organisations list of essential drugs under patent, the focus needs to shift to other obstacles to access.

The report shows that a 1% reduction in import tariffs leads to a 1% increase in access to essential medicines.

Tariffs and taxes on medicines are highly regressive and penalise the poorest and most vulnerable of society. In a democratic state, removing these taxes should be politically feasible, the report says.

In India, which has 5m people living with the Aids, only 30000 (0,6%) people only have access to antiretrovirals (ARVs). This is because Indias combined tax and tariff costs on medicine ran at over 60% until recently mainly to protect the countrys thriving generic medicine industry.

The director of pharmaceutical pricing at the SA health department, Anban Pillay, says the pricing committeePricing Committee, which looks at ways to bring medicine prices down, did moot the idea of scrapping the Vat on medicines.

But He says the treasury turned it down, saying that even if the 14% tax werewas scrapped, consumers would probably not see an equal reduction in medicine costs.

We need to see the evidence, but everything is on hold until the Constitutional Court constitutional court rules on the pricing regulations, he says.

Pillay suggests that since VAT Vat is charged on medicines, better use could be made of this revenue by the treasury ensuring to ensure it is spent on improving health-care access for poorer people.

At the moment, the money tends to get lost in the system, he says.

SA fares better than many other developing countries. India, for example, charged a combined tax and tariff of 60% on essential medicines until recently. Morocco, charges 38%. Kenya recently raised its medicine tariff and now and its combined tax and tariff rate is 38% of the cost of a medicine any medicine.

The various campaigns to lower the price of medicines in developing countries have placed little emphasis on the state-imposed barriers to access, says Africa Fighting Malaria director Richard Tren, who is co-author of the report. These include not only import tariffs, duties and taxes, but also non-tariff barriers such as lengthy registration periods for medicines. In SA, drugs that have already been registered for use in the US, the EU and Japan can wait for 29 months on average for approval from the Medicines Medicine Control Council (MCC), the report says. (Source: Financial Mail 29 April 2005).

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