Delay in zero VAT reduces manufacturers’ revenue by 8% – MAN

Pharmaceutical manufacturers are hit with losses of up to eight per cent due to the Federal Government’s delay in implementing its zero-Value Added Tax policy designed to ease the cost of pharmaceutical raw material imports.

The Pharmaceutical Manufacturers Group of the Manufacturers Association of Nigeria estimates that they lose up to eight per cent of their revenues as opposed to getting the intended relief, according to the PMG-MAN Chairman, Oluwatosin Jolayemi.

“The elephant in the room is that we are not able to pay duties,” Jolayemi explained. “For the zero VAT and non-payment of duties, we are yet to start seeing any benefits. There is supposed to be an implementation, but we haven’t received a protocol.”

He pointed out that the executive order being gazetted does not mean the Nigerian Customs Service would recognise it, saying “Until the government establishes an implementation protocol, the executive order remains just words on paper.”

The PUNCH learned that the executive order, intended to suspend import duties and VAT on pharmaceutical raw materials and equipment, has yet to be adopted by the NCS due to bureaucratic delays.

Jolayemi explained that coordination among government ministries, departments agencies, and the NCS is essential for the policy to take effect.

He retorted, “How long is it going to take for the implementation guidelines to come out? And even after the implementation guideline comes out, for the letter to go from the Ministry of Finance to the Comptroller-General of Customs?

“And for the Comptroller-General of Customs to write a letter to his commands. Now, that is one question.”

Without the anticipated reductions in import costs, pharmaceutical manufacturers have been forced to lower prices on expectations that the policy has taken effect.

According to the PMG-MAN, the pharmaceutical manufacturing sector is worse off than before President Bola Tinubu gave the executive order to suspend payment of duties on pharmaceutical inputs.

Jolayemi remarked, “The truth is the industry is in a worse position now than they were before the executive order came. Simply because the narrative out there in the market is that we are already importing raw materials or APIs at 0 per cent, excipients at 0 per cent, machines at 0 per cent, and we’re not paying VAT, which is a farce.

“So the markets, and I’m talking about the distributors or the drug traders, are forcing the manufacturers to drop prices or they would not carry our stock. So we are forced to continue to drop prices, even though we have not gained from the executive order.

“Head or tail, an average manufacturer loses. And that impacts on our bottom line. Because whatever margin you are making is lower now, as the markets feel and expect that there should be a price drop, believing that the benefits of the executive order have taken effect right from the day it was announced.”

Rising operational costs have compounded the situation, including the surge in electricity tariffs, the impact of the new minimum wage, and the escalating cost of foreign exchange.

“Electricity costs alone have jumped from N7-8m to about N42m monthly,” Jolayemi asserted. “When you add that to other costs, we’re losing about 7 to 8 per cent straight to the market.”

The delay in implementing the zero VAT also impacts Nigeria’s health sector, as many medicines now remain unaffordable or unavailable, affecting the supply to hospitals and clinics.

Jolayemi argued that the Federal Government should prioritise the pharmaceutical industry as it is vital to the health and productivity of Nigeria’s population.

“The pharmaceutical industry is meant to safeguard the health of the nation whereby we try to make people that are already down come back to life. A healthy nation is a wealthy nation.

“The amount of people we can get away or get out of the sickbed to the tracks will determine how healthy our nation is. And that particular sector must be taken care of because we are judged by the impact you create on the health of the nation. Because there is nobody in this country that can function with bad health.

“Because no matter how many hospitals, university teaching hospitals or family healthcare units you build, if there are no medications in these hospitals, they are just consulting houses.”

Further, the PMG-MAN chairman urged a rapid response from the National Agency for Food and Drug Administration and Control and the Federal Ministry of Health, stressing, “There must be an open dialogue between the government and industry stakeholders.

“Only then will the government truly understand our challenges and provide targeted solutions.”

Jolayemi raised concerns about time lost due to delays as he argued “The two years should start from the actual implementation date, not the announcement date.”

The PUNCH reported President Tinubu gave the executive order for zero VAT and excise duties on pharmaceutical products and medical devices on June 28, 2024.