Drugstores decry high costs of life-saving medicine, want them zero-rated

By Steve Umidha

Medical facilities want the government to reduce high taxes imposed on their products, saying the current levies are a major hindrance to the achievement of universal healthcare in the country.

Duncan Motanya, the Managing Director of Diabetes Management Medical Center, Pharmacy & Laboratory (DMMC) – a local based online Pharmacy and Diabetes Care Center, has urged for a review into the country’s tax system to allow certain drugs and medicines to be zero-rated.

“Some of these drugs are very expensive for patients treating life-threatening diseases such as diabetes and categorizing such drugs as ‘tax exempt’ may force dealers to pass on such costs to the consumers and lock diabetic patients from accessing treatment,” noted Motanya.

Kenya, like most countries, applies preferential rates to some goods and services, making them either “zero rated” or “exempt.”

For a “zero-rated good,” the government doesn’t tax its retail sale but allows credits for the value-added tax or VAT paid on inputs. This reduces the price of a good. Governments commonly lower the tax burden on low-income households by zero rating essential goods, such as food and utilities or prescription drugs.

The price of life-saving medicine for treating chronic diseases are essentially expensive in most African countries and are ordinarily higher than in Europe and North America.

Rohin Vora, the Chairman of the Federation of Kenya Pharmaceutical Manufacturers, who is also the managing director of Regal Pharmaceuticals Ltd, while responding recently to the proposal in the controversial Tax Laws (Amendment) Bill, 2020, said it would result in higher costs of medicine.

“This is going to increase the prices of medicine. When zero-rated, any operational input VAT paid by the manufacturer can be claimed back. Meaning that if we pay Sh16, we will be able to claim it.

However, when exempt, we will not be able to claim the Sh16 which will be transferred to the customer. Our call is that whenever there is manufacturing, it is better to go to zero-rating,” he was quoted saying.

Government had at the beginning of the year announced a host of tax measures including a return of 16 percent Value Added Tax (VAT) and new 15 percent presumptive tax which also came into effect on 1 January.

As a result, the Finance Act of 2020 effectively pushed the prices of certain imports beyond the reach of ordinary Kenyans which also impelled local firms to pass on those costs to the consumers even as the government seeks to increase its revenue collection.

“Eventually if the situation persists we could be compelled to pass on the additional costs to the consumers, but it our hope that the ongoing negotiations between organizations representing players like ourselves and relevant government agencies will bear fruits,” said an optimistic Motanya, ahead of the global Diabetes awareness month marked yearly in November 14.

Imports into Kenya are subject to a standard VAT rate of 16 percent, levied on the sum of the CIF value, duty, and other applicable taxes.

High cost and low availability of insulin in Kenya with inadequate patient follow up contribute to poor management.

Although the Kenyan government subsidizes insulin to reduce price for patients, supplies frequently run out and there is miscommunication between local depositories and central medical stores to restock.

The current disease burden indicates a need for more resources for prevention and health promotion, with primary healthcare taking greater responsibility for chronic diseases such as Diabetes, but the high taxation regime is worsening the situation at a local level. The cost of drugs generally contributed the most to total direct costs of treatment.

Trading Economics global macro models and analysts’ expectations, believes in the long-term, that the Kenya Personal Income Tax Rate will trend at around 30 percent in 2021, gesturing a dire situation ahead for both sellers and buyers of such drugs, particularly for insulin injection costs in Kenya.