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Pharmaceuticals and Taxation: International Experience

Here is a summary of a presentation that Volterra associate Nick Bosanquet recently delivered in Sao Paulo at a  conference sponsored by Interfarma – the Brazilian Research-based Pharmaceutical Manufacturers Association.  

Brazil can look forward to a very positive development period between now and the next Olympics There is a shift in global economic growth with a key hub in the South Atlantic area. Decisions on taxation of pharmaceuticals need to be taken as part of the strategy of economic and social development.  Poor health and disability are key factors in bringing about exclusion from the gains in economic growth.

The World Health Organisation has given a clear lead on the issue of taxation of pharmaceuticals.

“Taxing the medicines which restore and maintain peoples’ health is thus a tax on economic potential, contrary to both economic development objectives and to Public Health goals.” (Creese WHO Working Paper 5 Sales Taxes on Medicines. 2011) We have reviewed the experience of WHO  and OECD members  Our review covering the most advanced countries, Australia, Canada, France, Japan, UK and USA shows that in all cases pharmaceuticals are taxed at zero or nominal rates.

The generally accepted principles of fair taxation are that taxes should be equitable according to ability to pay: that they should be predictable and that they should be economically efficient in not creating social costs or distorting activity. Taxes on pharmaceuticals fail on all three tests. They fall most heavily on those whose incomes are likely to be falling. As disease is unpredictable in incidence so is the taxation: and taxes create social costs if they reduce access to medicines and increase disability. Currently taxes on pharmaceuticals average 36 %. Brazil is therefore currently out of line with international best practice.

There has been progress in improving health outcomes in Brazil, but now the country faces a new and difficult challenge of improving care for people with long term medical conditions. A recent special supplement in the Lancet confirmed the size of the challenge and showed wider international interest in how it is faced. Within a few years 40 million Brazilians are likely to be affected by one or more long term medical conditions. Diabetes and heart disease are already well known problems. With earlier diagnosis and improved treatment cancer becomes a long term illness: and evidence from the Platino study has shown that Sao Paulo has a 15% prevalence of COPD which is higher than in much of Europe. Brazil has had success in improving access for younger people and children through the family health programme. Now there is the new challenge of re-designing services for older people with long term medical conditions.

There is clear evidence that consistent use of medications can retard disease progression and improve quality of life for many people with long term conditions. Taxation has the effect of increasing pharmaceutical prices and worsening the position of people who are self-paying or co-paying. Brazil’s health service has a low level of beds and numbers of doctors. Health improvement depends on increasing access to pharmaceuticals.

Taxation on pharmaceuticals would also discourage international investment in pharma in Brazil. World population is set to expand from 7 bn to 10 bn and this will bring much extra spending on healthcare. Much of the new increase in population is on the Lima to Shanghai line where Brazil is well placed to be a key player in life sciences. We would urge that strategic issues both about demand and supply should be taken full into account in decisions about taxation on pharmaceuticals. Brazil needs to bring its taxation policies into line with international best practice.

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