Drug makers lament FG’s introduction of 7.5% VAT on raw materials

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By Francis Ogwo

Manufacturers of pharmaceutical products have lamented the introduction of 7.5% Value Added Tax (VAT) on packaging and essential raw materials by the Federal Government.

The National Chairman of Pharmaceutical Manufacturers Group of Manufacturers Association of Nigeria, Dr. Fidelis Ayebae, in a recent release, described the new introduction as “policy somersault” detrimental to the growth of the sector.

According to the Association, the 7.5 introduction would continue to place local drugs manufacturing below the drugs of their foreign counterparts and reduce local demands.

The Federal Inland Revenue Service in a statement signed by its Executive Chairman, Muhammad Nami, said it had received several mails from taxpayers inquiring whether some items are exempted from VAT in view of their inclusion in the 2020 modification order.

According to the statement, the main aim of the value-added tax modification order was to provide a clear definition of each item listed in the first schedule to the VAT Act through an extended list of the items so exempted.

The advertorial read in part, “The following items included in the breakdown are not exempted from VAT as they were not listed in Schedule 1 to the VAT Act or in a previous ministerial order:
(a) Natural gas
(b) Essential raw materials for the production of pharmaceutical products
(c) Renewable energy equipment
(d) Raw materials for production of baby diapers and sanitary towel.”

“These items shall continue to be liable to VAT at 7.5% until otherwise provided in an appropriate statutory instrument.

“Consequently, all taxpayers, practitioners, officials, other stakeholder and the general public should be guided accordingly.” It stated.

“If imported finished products are not VAT-able, why should struggling manufacturers in this country pay 7.5% VAT on local variants and raw materials? It calls to question the viability of local manufacturing when compared to foreign products.

“7.5% is a lot of money! I may as well sell off my factory and move into importation. That will, at least, give my shareholders better value for their money,” he added.

According to Ayebae, the new directive is brewing a crisis which is the first calamity for the sector in the last thirty years and would discourage investors.

Recall that the Federal Government had in accordance with the Finance Bill signed on 13th January 2020, revised the VAT rate from 5% to 7.5% which took effect from February 1, 2020.

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