Brazil Approves Tax Cut on Pharmaceuticals

Brazil's president has approved a decree that would cut the tax burden on roughly 1,000 prescription pharmaceuticals by 11%. The move is expected to benefit sales, without substantially affecting multinational sector margins.

Roughly 253 active pharmaceutical ingredients will be affected, in higher-value therapeutic classes such as CNS treatments and hypertension drugs. Therapies for diabetes, immune system disorders, osteoporosis, psoriasis will benefit, along with anti-infectives, anticonvulsants, antineoplasics and anti-inflammatories. Drug pricing regulator CMED will monitor and award tax breaks on the products affected.

The move is a major breakthrough for the government, which estimates the likely lost revenue at US$52mn per year. However, it is a positive development at a time when the authorities are looking to expand the healthcare market by bringing down drug costs.

However, the move is unlikely to satisfy the retail lobby, which notes that Brazil's taxes on pharmaceuticals are among the highest in the world, at some 32%. Further, much of the tax burden is due to the ICMS sales tax, which is collected at state level, and the federal government may lack the political capital to reform the levy.