Tax exemption for API manufacturers

In a bid to encourage local production of raw materials for the Bangladeshi pharmaceutical industry the government has decided that active pharmaceutical ingredients (APIs) and laboratory reagents manufacturers will continue to receive tax exemption until 2032. This is in line with the government’s policy on tax and VAT waiver for "Made-in-Bangladesh" goods. Of course, the manufacturers have to fulfill certain conditions. Despite the conditions, the tax holiday is like to play a big role in helping the industry flourish. It is worth mentioning that this comes against the backdrop of the Covid-19 pandemic.

This decision by the National Board of Revenue (NBR) is undoubtedly a crucial one. This is a well targeted move in addition to being a much sought-after fiscal incentive. We hope that this will have a very positive impact on the manufacture of some of the most vital pharma ingredients towards meeting both local and overseas demands. Although some leading pharmaceutical companies in the country do produce APIs, the volume compared to the demand is insignificant.   

Bangladesh pharmaceutical industry has proved its competence and capability by responding to demands of our health sector by producing necessary quality drugs. As a matter of fact, the local pharmaceutical industry at present meets as much as 98 per cent of the domestic demand for medicine. Bangladeshi medicines are now being exported to more than 160 countries. However, the local manufacturers have to import 90 per cent of raw materials from countries different countries.

All drugs are made up of two core components—the API, which is the central ingredient, and the excipient, the substances other than the drug that help deliver the medication to your system. Excipients are chemically inactive substances, such as lactose or mineral oil in the pill. Manufacturers use certain standards to determine how strong the API is in each drug. However, the standard can vary widely from one brand to another. Each brand might use different test methods, that can result in different potencies. API, which is a drug itself, is the main substance of the tablet or the liquid in which it is suspended or other material that is pharmaceutically inert. (API) is considered a 'magical' substance in a pharmaceutical drug that is biologically active.

The country's API policy had earlier emphasised the need for tax exemption as a required incentive for successful API production. Earlier, the NBR had waived advance income tax on the import of API raw materials till June 30, 2024, and in 2019, it offered exemption from payment of value-added tax on import of the same. All these are likely to go hand in hand in boosting API production in terms of reducing import and boosting production for domestic needs and exports. In the API policy, the government has set a target of achieving self-sufficiency in producing 370 important API molecules necessary for exports. Currently, the country needs to import $1.3 billion worth of raw materials including APIs for the pharmaceutical sector annually.

With the fiscal facilities now in place, the major obstacle has been removed. We believe that a boost to API production will ease procurement of raw materials quickly without having to face the annoying lead time and costly import for local pharmaceutical companies. Over and above, given the global market size of APIs --- to the tune of $135 billion, according to media reports -- there does exist a highly lucrative investment opportunity in the country that can attract foreign investors.

We hope that the API manufacturers will take full advantage of the tax holiday. By 2032 they should become competitive enough. Bangladesh needs to end its dependence on other countries for API. One of the major challenges before the country’s medicine sector is the dependence on raw material imports, hampering competitiveness in the global market. The country can save at least 70 per cent of the import cost of raw materials by producing API. To reap the benefits, Bangladesh would have to develop the knowledge and capacity to grab a bigger share of the global pharmaceutical market.