'Oversight' in Finance Supplementary Act to cause significant increase in hospitalisation cost

The federal government – in a move to control or reduce the prices of medicines, vide the Finance Supplementary Act, 2022 – has transformed the sales tax exemption which was earlier applicable to medicines into the zero-rating regime.

Consequently, pharmaceutical companies will now be able to get adjustments or refunds for the amount of sales tax paid by them on raw or packing material, utilities and other related items.

In line with the said withdrawal of sales tax exemption from the pharmaceutical sector, sales tax exemption which was earlier available to government, charitable hospitals and teaching hospitals under the then entry no. 52A of the 6th Schedule of the Sales Tax Act 1990 has also been abolished.

In line with the overall objective of the government to reduce the cost of medications and hospitalisation, an exemption that was earlier available to hospitals should also have been transformed into zero-rating on purchase of goods by hospitals, however, the same appears to have been inadvertently overlooked.

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The right to health for all people means that everyone should have access to health services they need, when and where they need them, without suffering financial hardship.

The government has a prime manifesto of providing basic social rights including the right to education, health, eradication of poverty, and security and is doing all-out efforts to improve the basic necessities of the common men through different socially motivated projects.

It could not be the objective of the government to increase the cost of basic medication and hospitalisation for an underprivileged class of the country. This understanding of the government’s policy is strengthened by the FBR’s circular no. 06 of 2022 dated 22-01-2022 wherein it has been stated that one and foremost objective of the changed regime of the sales tax on pharmaceutical sectors is to help the government in controlling and reducing the price of pharmaceutical goods.

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Unfortunately, the reverse has happened and the cost of health care will go up significantly. The private sector, on basis of Zakat and donation funding, serves a vast majority of the population in the country and consistently outperforms its public counterparts.

Based on the above-referred amendment to the 6th Schedule of the Sales Tax Act, 1990, the government will now be taking sales tax out of the Zakat/donations funding, which apparently, is an inadvertent mistake and not a considered decision.

The imposition of a 17% sales tax on purchases of hospitals would also discourage the NPOs from embarking upon initiatives for welfare or charitable projects, aimed at intensifying their current welfare healthcare programmes and facilities.

In addition to the aforesaid impact of 17%, the hospitals are now being subjected to 3% further sales tax as they are not legally required to get themselves registered under the Federal Sales Tax law.

In view of the aforesaid issue of levy of sales being faced by hospitals across the board, joint representations, from time to time, have been made by major hospitals to the President Dr Arif Alvi, Prime Minister Imran Khan, Finance Minister Shaukat Tareen as well as to SAPM on Health Dr Faisal Sultan with a request to make necessary amendments to the Sales Tax Law to allow zero-rating on purchases made by hospitals or alternatively, at least to restore clause 52A of the 6th Schedule to the Sales Tax Act, 1990 and restore sales tax exemption.