The debate over access to affordable medicines in emerging and developing countries frequently overlooks a critical issue: Governments in these countries routinely slap tariffs and other taxes on vitally important drugs.
While these measures tend to be modest revenue generators, they make the affected medicines more expensive, which can put them out of reach for many who need them most.
Like developed countries, emerging and developing countries import some — if not all — of their medicines, the cost of which is mainly covered by the patients themselves, given these countries’ lack of health insurance. For example, Indians pay 70 percent of their healthcare expenses out of their own pockets. With tariffs and other taxes increasing drug costs by as much as two-thirds in some areas of the country, even the most basic generic drugs become unaffordable for the poorest people. As one research report on Delhi’s medicine market concluded, such levies are essentially a “tax on the sick” which the government could easily remove.
The story is similar in many emerging markets. According to a 2012 study by the WTO, Argentina, Brazil, India and Russia impose tariffs of about 10 percent on imported medicines, while Algeria and Rwanda maintain a 15 percent rate, and in Djibouti, the figure rises to 26 percent.
As the report said, it is difficult to understand why small countries maintain high tariffs on health products — a move that serves only to drive up domestic prices.
Many countries also levy hefty sales taxes. Brazil imposes a 28 percent rate on prescription medicines, while medicines in India are subject to 5 percent value-added tax and a 3 percent education tax, on top of state taxes that range from 5 to 16 percent.
Developing countries justify these taxes by claiming that they fund social spending, but in 2011, India raised more in drug taxes than the government spent on medicines for the public. India’s healthcare crisis might ease if the government stopped artificially hiking the prices of medicines that people need.
Moreover, fiscal pressures notwithstanding, it seems highly regressive, if not downright perverse, to place the greatest financial burden on those in the poorest health (and who presumably are the target of such social programs). It is also economically counterproductive. Raising medicine prices reduces usage, leading to more illness, lower productivity and slower GDP growth.
There is a better way. Several countries, including Colombia, Ethiopia, Malaysia, Nicaragua, Pakistan, Tanzania and Uganda, have substantially reduced or eliminated tariffs and taxes on medicines. The results have been dramatic — After Kenya removed tariffs and taxes on anti-malaria products it reported a 44 percent decline in infant mortality and disease between 2002 and 2009.
As major pharmaceutical exporters themselves, India and China have a clear interest in seeing lower medicine tariffs worldwide. India, dubbed “the pharmacy to the developing world,” is one of the largest exporters of finished drugs, while China produces 70 to 80 percent of these drugs’ active ingredients.
Abolishing pharmaceutical tariffs would follow the example set by developed countries when they created the WTO two decades ago.
As the WHO said: “Governments should tax the things which make people ill, not the things which make them well.”
To be sure, tax cuts would not address all of the many challenges surrounding access to healthcare in emerging and developing countries, such as the lack of hospitals, clinics, doctors, and public and private insurance. Yet removing tariffs is something that could be implemented quickly and that would benefit the neediest people immediately.
As home to leading drug producers — and many of those most affected by these taxes — India and China should lead an international liberalization effort. The BRICS (Brazil, Russia, India, China and South Africa) summit, held from July 15 to June 17 in Fortaleza, Brazil, might be a good place to start.
These countries have certainly demonstrated a capacity to act together. Earlier this year, China joined 13 other WTO members calling for tariffs on environmental goods to be removed. China, India and the other BRICS should form a similar coalition to press for the elimination of pharmaceutical tariffs, thereby broadening access to healthcare throughout the developing world. The world’s sick and vulnerable should not have to suffer needlessly.
Rod Hunter worked as senior director for international economics on former US president George W. Bush’s National Security Council and is now senior vice president at the Pharmaceutical Research and Manufacturers of America.
Copyright: Project Syndicate
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