The ongoing pharma MNC exodus.

A pharmacist sticks a piece of white tape on a medicine box. Coolly, he pens the price at which he will be selling the drugs.

The Drug Regulatory Authority of Pakistan (Drap) fixes the maximum retail price at which a medicine is allowed to sell officially. But there is nothing much stopping retailers from charging a higher price if market forces allow it, which they do.

Less compliant than their foreign counterparts, local companies find it easier to survive in Pakistan's pharmaceutical sector while the multinational exodus has accelerated in recent years. Sanofi Aventis Pakistan limited has exited, selling its plant to local companies and Bayer is closing up shop as well, confirms Pharma Bureau Executive Director Ayesha Tammy Haq of the Overseas Investors Chamber of Commerce and Industry.

Regime changes and the spiralling economic crisis have not been kind to the sector.

As the economic crisis worsens along with regulatory challenges, multinationals find it expedient to close shop

Sales tax saga

'Sales tax has not been reduced, sales tax has been imposed,' says Ms Haq, clearing up a misconception. 'Previously, the pharmaceutical industry was exempted from sales tax. In January this year, PTI imposed 17 per cent sales tax solely for documentation purposes that was to be refunded in its entirety.' Hitherto, pharma did not pay sales tax on active pharmaceutical ingredients (API) or other raw materials, only on packaging materials.

As expected, the money has not been refunded causing cash flow problems. The current government reduced the 17pc (refundable tax) to 1pc non-refundable tax, imposed at different stages. So the 'reduction' in sales tax was leading to an increase of 6-9pc in cost which could not be passed on to the final consumer because of Drap's restrictions.

This, along with the 4x increase in shipping charges and the continual devaluation of the rupee skyrocketed the price of APIs and other materials, jacking up costs for an industry that cannot officially pass the increase on to the consumer.

Hence, the friendly neighbourhood pharmacist and his handy white tape to increase the price because his margins are being squeezed by the companies.

The government has agreed that the situation is untenable for companies to operate in and has made the usual promises to fix the situation that had not been implemented till the writing of this article. If implemented, the 1pc sales tax on APIs will be scrapped. There is a refundable (for pharma...