Tinubu suspends import duties and VAT on medical supplies

President Bola Tinubu has signed an executive order suspending import duties and value added tax on essential medical goods entering the country.

The aim is to reduce the high costs of local production of pharmaceuticals, diagnostics and medical devices such as needles and syringes as well as biological products.

Muhammad Ali Pate, Minister of Health and Social Welfare, announced the development on Friday and said the Minister of Justice and Attorney General of the Federation was expected to initiate the necessary steps to codify the new regulation.

“The order is critical to the success of the healthcare value chain opening initiative approved by the President in October 2023,” Pate said.

“The regulation eliminates customs duties, excise duties and VAT on certain machinery, equipment and raw materials. The aim is to reduce production costs and improve the competitiveness of our local manufacturers.”

According to the minister, the items mentioned include active pharmaceutical ingredients (APIs), excipients and other essential raw materials needed to manufacture essential health products such as medicines, syringes and needles, durable insect nets and rapid diagnostic kits.

The regulation also provides for the introduction of market-shaping mechanisms such as framework agreements and quantity guarantees to encourage local producers, the minister noted.

Also read: Tinubu signs executive order to abolish tariffs and VAT on health equipment

In addition, Pate explained that the order requires cooperation between the ministers of health, finance, and industry, trade and investment to develop a harmonized implementation framework, expedite regulatory approvals, and reduce bottlenecks.

In addition, agencies such as the Nigeria Customs Service, the National Food and Drug Administration and Control Authority, the Nigerian Standards Organisation and the Federal Inland Revenue Service will be tasked with ensuring speedy implementation, with special exceptions and exemptions being valid for two years.

“This order means we are focusing more on market-based incentives to encourage the industrialization of medicine, reduce the cost of medical devices over time through import substitution, create and sustain economic value, and enable job creation in the healthcare value chain,” Pate said.

Challenge

BusinessDay had reported that healthcare providers, pharmaceutical manufacturers and drug distribution companies face tariffs of around 5 to 25 percent on imports of essential medical goods, including raw materials needed for production.

They also struggle with product registration fees that do not reflect the fact that patients are paying the price.

On paper, medical and pharmaceutical products are exempt from the regular 7.5 percent value-added tax, as are machinery for use in export processing zones and certain staple foodstuffs.

But despite all this, healthcare companies are faltering.

Cameras for medical or surgical examination of internal organs will be subject to an import duty of 20 percent and a value added tax of 7.5 percent. The customs administration describes this as the implementation of the ECOWAS Common External Tariff (CET) for the period 2015-2019 and the 2015 tax policy measures.

An import duty of five percent is levied on respiratory support systems such as ozone therapy, oxygen therapy, aerosol therapy and artificial ventilation.

An import duty of five percent is levied on medical imaging equipment such as electrocardiographs, ultrasound scanners, magnetic resonance imaging machines and UV devices.

Syringes (with or without needles) are subject to an Import Adjustment Tax (IAT) of 65 percent, while surgical needles and dental equipment are subject to an import duty of five percent.

Pharmaceutical packaging materials such as gelatin capsules account for 25 percent.

“Many years ago, there was a 20 percent tariff on medicines. The government abolished it but then called it something else, CET levy, and still charges 20 percent,” Samuel Okwuada, CEO and co-founder of Remedial Health, a health-tech company transforming the pharmaceutical supply chain, told BusinessDay.

“If I import a container of a diabetes drug and it costs me 100 million naira and I have to pay 20 percent duty, no matter what name it is under, then that simply means I am spending 120 million naira. The extra 20 million is not something I will bear myself. I will pass it on to the customer. Just by removing that layer, the price of that drug will directly change.”

Okwuada, like most key players in the health sector, is convinced that a one-time removal of such levies can immediately reduce the cost of essential medicines for many Nigerians in need.

And since around 75 percent of Nigeria’s medicines and consumables come mainly from India and China, making the medical supply chain highly vulnerable to exchange rate fluctuations, analysts say it is self-sabotage to thwart this process by imposing crippling fees.

“We have a pharmaceutical industry that is 100 percent dependent on the dollar. That is the biggest problem. The government should think about how to support the growth of this industry,” Okwuada added.

“We didn’t think about the high cost of production in Nigeria, whether it was electricity and the lack of it or the cost of transporting products from one place to another in Nigeria. We don’t think about all these things.”

Okey Akpa, chairman of the Pharmaceutical Manufacturers Group of the Manufacturers Association of Nigeria (PMG-MAN), spoke at a consultative forum in March in favor of exempting this specialty equipment from tariffs in order to increase local manufacturing capacity.