Medicines to be more costly for the poor people

THE consumers of medicines will have to pay an increased value added tax of around 2.4 percent on an average from the existing 2 percent. The National Board of Revenue on Wednesday issued an order saying that medicine manufacturers would have to deposit VAT on actual commission which they give to the retailers from January 2015, officials said.
‘It means, the rate of VAT will go up by 0.4 percentage points to 2.4 percent from the current 2 percent on the value addition,’ explained a NBR official. The manufacturers set their medicine price, which is marked on the pack, including VAT along with other costs. Pharmaceutical products manufacturers expressed apprehension that the price of some medicines may be increased ‘a little bit’ to adjust the additional VAT. But there will not be any major price hike, they claimed.
Currently, the Revenue Board collects VAT at 2 percent from the manufacturers assuming 13.3 percent value addition for the products at retail stage. But the actual value addition is on an average 16 percent as the manufacturers give the amount as commission to the retailers, a high official of the Revenue Board said. He said that the Revenue Board would get additional Tk 50 crore a year from the sector.
While the Revenue Board is hopeful that manufacturers will not raise their prices and the major manufacturers themselves said prices would be raised insignificantly the reality remains that medicines are very much a merit good which have strong positive externalities. Increasing their prices by even 1 percent may make the difference between life and death for a low income person -can the difference be measured simply by the need for the NBR to make more money ?
More revenue generation would not be essential if the government decided not to increase the salaries of public officials continuously — we all know that their efficiencies will never increase — if it resulted in a more effective implementation of ongoing projects then one could say that the money was well spent — it would mean savings for the national exchequer.
However in reality none of this has actually happened — increasing VAT collected from medicine will only contribute to cost push inflation as the pharmaceutical industry is an important sector of the economy. These policies of collecting VAT from such vital sectors like pharma and telecoms will only result in a reduction growth in the long term along with inflation .What is worse is that these price increases will ensure that more poor people will die or pay a heavier economic burden than before — surely our poor have been squeezed too much already ? The extra 50 crore a year is not worth it.