All market participants are sure that drug prices will rise in the event of an increase in VAT for pharmaceutical companies to 20%.

The Ministry of Finance of Ukraine presented its draft Tax Code, which for one year cancels the preferential VAT for imported medicines and medical devices. If now distributors of pharmaceutical products and international manufacturers pay value added tax in the amount of 7%, then in 2016 they will be offered to pay 20% of VAT to the treasury on a general basis.

As a reminder, 7% VAT for pharmaceutical companies was introduced in March 2014 (the Verkhovna Rada adopted the Law “On preventing a financial disaster and creating prerequisites for economic growth in Ukraine” on March 27, 2014). Prior to that, the import of medicinal products was not subject to VAT.

As noted by the Ministry of Finance, the additional 9.8 billion UAH will be sent to the Special Fund of the budget and will be used to reform the current Ukrainian health care system.

A natural question arises: how much do medicines become more expensive with VAT at 20%.

In 2014, after the introduction of a 7% VAT rate on pharmaceuticals, experts noted that this would lead to a 21% increase in prices. At the same time, according to their calculations, if VAT was increased to 20%, the cost of medicines would increase by 70-80%.

Today, the situation on the pharmaceutical market is no different from the one and a half years ago, and for one year (from June 2014 to June 2015), the price of imported medicine packaging increased by an average of 37%.

The Association of Representatives of International Pharmaceutical Manufacturers AIPM Ukraine commented on this issue and noted that the obvious result of such initiatives of the Ministry of Finance will be an unequivocal increase in the price of pharmaceutical products, and the VAT rate of 20% is inadequate for goods of social purpose, since special approaches to the taxation of medicines are practiced all over the world, governments stand to protect the interests of its citizens and, in addition to reduced VAT rates, provide the population with a system of reimbursement of the cost of medicines (full or partial – the so-called reimbursement).

Distributors and pharmaceutical manufacturers, in turn, talk about the inevitable fall of the market. According to Yevgeniy Zhyvodernikov, the head of the analytical service of Pharmplaneta, the market has already experienced more than one price increase, which was inevitably accompanied by a reduction in the volume of drug consumption in natural terms. “In 2014, the volume of sales of medicines in packages decreased by 12%. In 2015, the market volume will decrease by another 10%,” Yevhen Zhivodernikov describes the situation.

The international company Bayer says that the introduction of 20% VAT will also transform the market. “Large companies will be more resistant to such changes, but some small wholesalers and pharmacy chains may not be able to resist. They will lose their target audience, who will not be able to pay more for medicines, the low income of companies will not allow them to purchase new medicines, there will be a big risk of closing such small chains and wholesalers”, – predicts the possible development of the situation on the market Olena Zubko, representative of Bayer HealthCare in Ukraine , head of the Bayer Consumer Care division in Ukraine.

At first glance, it might seem that the 20% VAT rate introduced for drug importers could play into the hands of Ukrainian manufacturers, but this is not the case.

Although in 2014-2015 Ukrainian companies managed to win back a part of the import market, increasing their share to 66%, they mainly produce generics rather than original drugs. According to Yevhen Zhivodernikov, a “copy” cannot be produced for all imported medicines. “This especially applies to modern innovative and inevitably expensive foreign medicines. First of all, they include means for the treatment of oncological pathology, systemic and other serious diseases,” he notes.

At this moment, it is worth mentioning the role of the state in providing the population with medicines. As everyone already knows, the Ministry of Health has decided to transfer part of the purchases to international organizations, including the purchase of original drugs for the treatment of cancer patients, hepatitis patients, as well as vaccination programs. The Verkhovna Rada supported such a move and canceled all taxes on imported medicines. The government has not clarified how the two tax initiatives will coexist, and it is not yet known whether the purchased medicines will be enough for everyone.

Published based on the materials of delo.ua