Value-added Tax in the Pharmaceutical Industry: What does it really mean for Kenya's industrialisation?

How to manage trade taxation policy in such a way that public revenue can be acquired but not at the cost of long term industrialisation

Abstract

A key issue for many countries is how to manage trade taxation policy in such a way that necessary public revenue can be acquired but not at the cost of long term industrialisation. An important area here is that of VAT and how best to levy it with respect to the pharmaceutical industry. The 2 pieces of regulation in point here are the VAT Act 2013 which was effective from 2nd September 2013, and its amended form, the Value-added Tax (Amendment) Act 2014 which came into effect from 29th May 2014. The former aimed at maximising tax revenue by minimising the number of products eligible for VAT exemption (only finished pharmaceutical products remained exempt from VAT) while the latter amends this to exempt “inputs or raw materials” for the manufacture of medicaments by pharmaceutical manufacturers in Kenya. The aim has been to ensure that the competitiveness of locally manufactured pharmaceuticals is not undermined by the enactment of the 2013 Act. No 1 September 2014.

Local manufacturing of pharmaceutical products in Kenya is focused on generic medicines on the Kenya Essential Medicines List 2010.This orientation of the industry offers the possibility of improving affordability, availability and quality of essential medicines. As such, the local industry has an important role. The 2014 Amendment Act aims to protect low income citizens from rising prices of basic essential medicines. However, there still remains ambiguity regarding implications of the indirect tax regime on local manufacturing. This short paper argues that there are still a number of unresolved issues which merit further attention

This work is part of the ‘Industrial Productivity, Health Sector Performance and Policy Synergies for Inclusive Growth: A Study in Tanzania and Kenya’ Project

Citation

Wamae W, Kariuki Kungu J, Clark N, (2014) Value-Added Tax in the Pharmaceutical Industry: What Does It Really Mean for Kenyan Industrialisation? ACTS Working Brief No 1, Nairobi, September

Value-added Tax in the Pharmaceutical Industry: What does it really mean for Kenya’s industrialisation?

Updates to this page

Published 1 September 2014