Posted on: Thu 27-03-2025

 

With the Federal Government implementing a zero VAT and import duty exemption on pharmaceutical products and medical devices, can Nigerians expect a significant drop in drug prices? While industry experts and stakeholders hail the policy as a game-changer, could there be unintended consequences that might hinder its success?

How Effective is the Zero VAT Policy?

The Nigeria Customs Service (NCS) has officially commenced implementing the Value Added Tax (VAT) and import duty exemptions on critical raw materials for pharmaceutical production. This move aligns with President Bola Tinubu’s Executive Order, signed in June last year, aimed at boosting local production of essential medicines, diagnostics, and medical devices.

The exemption, set to last for two years, covers Active Pharmaceutical Ingredients (APIs), excipients, reagents, packaging materials, and diagnostic kits, among other essential items. But will this truly translate into lower drug prices for everyday Nigerians, or will the benefits be absorbed elsewhere in the supply chain?

The Potential Merits: Cheaper Drugs and Increased Access?

Many experts believe the policy could bring much-needed relief to a struggling healthcare system:

 Lower Drug Prices: A reduction in VAT and import duties directly lowers production costs, making medicines like antibiotics and antimalarial drugs more affordable.

 Boosting Local Pharmaceutical Industry: By reducing the cost of raw materials, local manufacturers could expand production, reducing dependence on imported drugs.

 Improved Access to Essential Medicines: With reduced costs, hospitals and pharmacies may be able to stock more essential drugs, improving availability for patients.

 Enhanced Public Health Outcomes: Lower drug costs could encourage more people to seek treatment early, potentially reducing mortality rates from preventable diseases.

Pharm. Iyiola Gbolagade, a former National Secretary of the Pharmaceutical Society of Nigeria (PSN), described the policy implementation as commendable, emphasizing that it could significantly lower the cost of essential medicines. Similarly, Prof. Cyril Usifoh, former President of PSN, pointed out that covering a wide range of pharmaceutical raw materials increases the likelihood of policy success.

The Possible Drawbacks: Are There Risks to Consider?

Despite the optimism, some concerns remain about the policy’s execution and long-term sustainability:

•  Will Savings Be Passed to Consumers? While production costs may drop, will pharmaceutical companies and pharmacies truly reflect this in retail prices, or will the savings be absorbed as additional profits?
•  Limited Duration – What Happens After Two Years? The exemption is only for two years—what happens when the grace period ends? Will drug prices skyrocket again?
•  Regulatory Bottlenecks: The Federal Ministry of Health and Social Welfare has restricted eligibility to only manufacturers recognized by the government and possessing a valid Tax Identification Number (TIN). Will bureaucratic hurdles prevent some manufacturers from benefiting?
•  Smuggling and Market Manipulation: Could the absence of VAT lead to unintended market distortions, such as smuggling of non-approved drugs or price-fixing by dominant pharmaceutical companies?

The Verdict: A Step in the Right Direction, But Will It Deliver?

While the zero VAT and import duty exemption presents a golden opportunity to ease Nigeria’s healthcare burden, its success will depend on effective implementation, transparency, and sustained government oversight.

Will pharmaceutical companies truly reflect lower costs in their pricing? Will the government extend the policy beyond two years if it proves beneficial? And more importantly, will ordinary Nigerians see tangible relief in their medical expenses?

The success of this policy remains an open question—one that will be answered in the months ahead. What do you think? Will drug prices actually drop, or will this be another policy with great promise but little impact?

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