Asia Times: Musharraf backs down on new drug tax


	April 2, 2002	atimes.com

India/Pakistan

Musharraf backs down on new drug tax
By Muddassir Rizvi

ISLAMABAD - Pakistan's military government has succumbed to public pressure and exempted life-saving drugs from a new tax on medicines, but critics say that nothing short of the revocation of the entire "anti-poor" measure is needed.

The government of Pakistan President General Pervez Musharraf announced its decision on Friday, in the wake of an uproar from activists, the public, medical experts and pharmaceutical companies over a general sales tax (GST) on medicines, unveiled last week.

"The president has ordered an immediate review of drug prices and directed that all life-saving medicines be exempted from the levy of GST," said a statement by Musharraf's secretariat after his meeting with ministers of health and commerce. "A high-level ministerial committee has been constituted to finalize a list of medicines [to be exempt from GST] and review all issues relating to the pharmaceutical industry," it explained.

But the presidential order does not satisfy many, who stuck to their demand that the exemption should be across the board.

"There is no justification for taxing medicines and we demand that the government withdraw this unpopular tax being imposed at the behest of the International Monetary Fund [IMF]," said Dr Zafar Mirza, executive coordinator of the Network for Consumer Protection, an Islamabad-based consumer group leading the anti-GST campaign. Mirza also criticized the government order for exempting drugs procured by government hospitals from GST, saying that public sector hospitals only account for 20 percent of all medicines sold in Pakistan. "We'll support a decision that serves the interests of a majority."

The imposition of a 15 percent GST on all medicines announced evoked a sharp response from consumer groups, political parties, press, doctors and pharmacists associations and industry organizations, who demanded its immediate withdrawal. They argued that the new tax would hurt the poor the most. The critics, who bombarded the press with protest notes, argued that the new tax would push up drug prices, making them inaccessible to a majority in a country where 50 million out of 135 million people live below the poverty line.

As many as 50 percent of Pakistanis have no access to essential drugs, while more than 45 percent are not covered by primary health care services. The drug prices of most of the commonly used medicines are already higher in Pakistan than in other countries in the region. The government, however, insisted at the time of the GST imposition that the new tax would raise prices by just between 10 to 12 percent. But consumer groups bulldozed that claim, producing prompt reports that showed an up to 40 percent rise in the drug prices due to a 3-4 percent price hike approved by the government in November.

The protests became harsher when pharmacies and drug stores throughout the country threatened to go an indefinite strike. "We have given the government a 22-day ultimatum for the withdrawal of GST from all medicines - all drugstores throughout Pakistan will close if the government does not act," said Sadaqat Zia, senior vice president of the Pakistan Chemists Association, which is not happy with the partial withdrawal.

Economists lambasted the tax as a shortsighted policy that would exacerbate poverty, even if meant as a revenue-raising measure to help Pakistan meet its commitments to the IMF.

"It is the double standards of the government; one the one hand, it is claiming to alleviate poverty and on the other, it has imposed a tax that will directly affect the poor," said Shahrukh Rafi Khan, an economist and the executive director of the Sustainable Development Policy Institute, based in Islamabad. Khan based his argument on the fact that the poorest of the poor in Pakistan spend double the amount in health bills as compared to the richest of the rich. According to the government's own survey, Pakistani citizens spend 6.15 percent of their total income on health bills, while the rich spend less than 3.2 percent.

What made the GST even more unpopular was the government's admittance that it was levied as part of conditions of the IMF that came with a low-interest loan to Pakistan under the Fund's Poverty Reduction and Growth Facility. In a bid to raise more revenues, the Pakistani government is looking at other ways of doing that apart from the GST on medicines. It is also considering the withdrawal of tax exemptions on edible oil, agricultural implements and information technology.

Anti-Musharraf political parties made it a point to embarrass the military government for its allegiance to international financial institutions and Western countries - criticism that Musharraf would like to avoid at a time when he is mustering public and political support in order to stay in the office of president for another five years through a referendum. "Such decisions would make General Musharraf more unpopular among the public," said Dr Afsarul Mulk, a leader of the Benazir Bhutto-led Pakistan People's Party.

Many public health experts, moreover, say that the exemption from GST of life-saving medicines would only create more ambiguities in implementation. "Who will determine which is a life-saving drug as the term is not defined in the country's Drug Law? If the decision means that medicines that qualify as emergency drugs required to be put in hospitals' emergency units, the impact of this exemption will be negligible as there are only 40 to 45 medicines that fall in that category," argues a pharmacist who works with the health ministry, requesting anonymity.

When contacted, the spokesman of the health ministry, Matiullah Khan, also could not give the exact number of drugs that would be exempted from GST, but said the list would be finalized by the committee formed by Musharraf.

The government had expected to generate 4 billion rupees (US$66.7 million) in revenues from the GST measure and pledged to use this for the health sector in the next budget. Pakistan spends 0.7 percent of its GDP on the health sector, the lowest in the region.

(Inter Press Service)