Value-added tax on pharmaceuticals will stay at 7 percent in the government’s proposed tax plan, despite previous intentions to raise it for all the industries to 20 percent.
Ilya Neskhodovsky, a tax expert from the public initiative Reanimation Package of Reforms, welcomed the decision.
“VAT is a consumption tax, the country should not make money on people who got in a difficult situation and need to buy medicine,” he told the Kyiv Post. “A 7 percent rate’s goal is to prevent drugs from being even more expensive than they are.”
According to him, a lower tax rate for medicine is a common practice in many European countries. What Europe has, and Ukraine does not, however, are lower rates for other staple products.
“The 7 percent rate could be applied to some utilities, food, but we need to consider how real it is in terms of keeping the budget balanced,” Neskhodovsky said.
Pharmaceutical companies also welcomed the tax: “The average consumer won’t be forced to give up the quality of European medicine,” said Vladimir Mitin, director of Actavis Ukraine, a global pharmaceutical company. He further suggested that Ukraine should introduce differentiated tax rates for prescription and non-prescription drugs to make the system fairer.
The decision not to raise the tax, however, is unlikely to satisfy consumers. Prices for medicine have jumped considerably since the hryvnia devalued by two-thirds in the last year.
Tamara Malyzheva, a 72-year-old pensioner from Kyiv, has a heart condition and spends Hr 1,500 of her Hr 6,000 pension on medicine a month and she says the prices rise continuously. She believes the government should be to standardize prices for medicine. “Prices at one pharmacy can be higher than at another. The government should do it every month to make sure that these private pharmacies don’t rob people,” Malyzheva said.
Vladimir Rudenko, director of the Ukrainian Pharmacy Professionals Association of Ukraine, offered some explanation at a news conference at UNIAN on Dec. 9.
“Prices are formed depending on the exchange rate, as well as medicines in most domestic production produced from imported raw materials. So, most of all, the retail price paid by Ukrainians depends on producers and distributors.”
A worker at the Darnytsa pharmaceutical company in Kyiv, Nov. 11, 2011. The company planned to increase production in line with government policy at the time to decrease Ukraine’s reliance on imports. (UNIAN)
But Oleg Musiy, a lawmaker, doctor and former health minister from February-December 2014, told the Kyiv Post that these price differences are a product of several different factors.
“Firstly, it’s connected to the fact that 80 percent of medicine is imported and is affected by the U.S. dollar. If they bought it six months ago, that can explain the change. Secondly, it relates to import tax of 10 percent introduced recently which means wholesale mark ups are allowed to be up to 10 percent and retail between zero and 25 percent on any medicine,” said Musiy. “And medicine wholesalers who monopolize the market have unwritten contracts with retailers.”
Asides from legislation which relates directly to medical products, other structural changes such as pay rises need to be prioritized.
“The price of medicine is also affected by things like doctors pay. At the moment this is $100 which is very low. Pharmaceutical companies pay doctors to recommend certain medicines which can be more expensive and less effective,” said Musiy.
The absence of medical insurance which is used in other countries to reimburse the costs, amongst other things, means there is less incentive to monitor and police pricing, according to Musiy. “The market mechanism would help monitor and reduce the price,” he said.
Likewise, Mitin of Actavis also recommends an insurance-based system: “In the absence of compensatory mechanisms today, patients cover at least 90 percent of the cost of treatment themselves…(in developed countries) patients pay no more than 40 percent and the rest is covered by the insurer,” said Mitin.
Finance Minister Natalie Jaresko is not convinced a lower VAT tax leads to lower drug prices. She has been on a quest to standardize VAT tax rates. But she says the Health Ministry does not yet have a mechanism in place to subsidize cost of medicine for poor people.
Kyiv Post staff writer Veronika Melkozerova contributed to this story.
