Twelve Brazilian regional states have decided to increase the rate of the ICMS, a value-added tax on the circulation of goods and services, citing storage problems due to the economic recession.
IHS Life Sciences perspective | |
Implications | Most of the tax increases were at 1.2%, while the rate in Rio de Janeiro increased to 20%. Across the country, the average tax burden increased from 33.9% to 34.2%. |
Outlook | This measure of increasing tax on medicines is intended to correct disparities in the Brazilian economy. However, for the pharma industry, high taxes on medicines remain a feature of the Brazilian market, and the burden that these taxes place on payors is likely to increase. |
Twelve Brazilian regional states have decided to increase the rate of the ICMS, the main state value-added tax on the circulation of goods and services, claiming storage challenges caused by the economic recession, reports medical media source Saude Business. The VAT is levied on all medicinal products sold and distributed in Brazil. According to the source, the ICMS has been raised in 12 Brazilian states, reaching 20% ??in Rio de Janeiro.
ICMS adjustment planned for 2016 | ||
State | Rate for medicines, 2015 (%) | Rate for medicines, 2016 (%) |
Amapa | 17 | 18 |
Amazon | 17 | 18 |
Bahia | 17 | 18 |
Maranhão | 17 | 18 |
Paraíba | 17 | 18 |
Pernambuco | 17 | 18 |
Rio de Janeiro | 19 | 20 |
Rio Grande do Norte | 17 | 18 |
Rio Grande do Sul | 17 | 18 |
Rondonia | 17 | 17.50 |
Sergipe | 17 | 18 |
Tocantins | 17 | 18 |
Source: Interfarma | ||
Most of the increases were at 1.2%, while the tax rate in Rio de Janeiro was increased from 19% to 20%. Across the country, the average tax burden increased from 33.9% to 34.2%. According to Saude Business, following this development, the Brazilian pharmaceutical industry association Interfarma stated that these tax increases would negatively affect the discounts that pharma companies tended to provide.
Outlook and implications
The measure of increasing tax on medicines is meant to correct disparities in the Brazilian economy. However, for the pharma industry, high taxes on medicines remain a feature of the Brazilian market, and the burden that these may place on payors is likely to increase.
Furthermore, the increased tax burden may force a reduction in the discounts offered in retail, especially because the pharmaceutical industry is also being hit by other costs such as the depreciation of the real and the price of energy (see Brazil: 23 September 2015: Brazil's local currency weakness likely to affect pharma companies' financial performance in H2).
According to Interfarma, the increase in taxes on medicines and the reduction of discounts are likely to raise medicine prices (see Brazil: 8 December 2015: Cuts to medicine discounts increase prices by 20% in Brazil). This is an especially negative development considering that at least 50% of the population pays for medicines out of pocket in Brazil.
In 2014, BRL7.8 billion (USD2.3 billion) was collected in federal taxes on medicines, of which BRL1.5 billion related to profit participation contribution (PIS) and social security financing contribution (COFINS) taxes, reports Interfarma. Although Brazil-based pharma companies could face higher production costs from an extension of the PIS/COFINS taxes, they could find it difficult to increase medicine prices because of the government's control over drug pricing (see Brazil: 18 May 2015: PIC/COFINS tax changes could increase medicine prices in Brazil by 6%, says Interfarma).