Death and Taxes.In the time it will take you to read this column at least ten people in poor countries will die from diseases that are preventable and curable. Well over half the world's population lacks access to even the most basic medicines. Improving access to critical medicines should be a top priority for policymakers in poor countries.
Why taxes and tariffs on medicines in developing nations is a fatal policy.
Medical Progress Today
May 5, 2005
Along with Richard Tren and Jasson Urbach, I am the author of a just released study, Taxed to Death, which exposes the extent to which many developing countries increase the price of medicines to consumers by imposing import tariffs, charging value added taxes and maintaining burdensome bureaucratic obstacles to registering and selling medicines.
In 53 low-income countries, import tariffs for completed medicines, essential medical products - like bandages and the raw materials for drug production - range from zero in Brunei to 9.6% in Brazil and as high as 16% in India and 20% in Nigeria. When all the duties and taxes are added up, the cost of average medicines and medical equipment is routinely inflated by around 30%.
Of course, it is the right of any nation to raise revenue as it sees fit. Our statistical analysis, however, finds a negative association between access to essential medicines, as measured by the United Nations, and the degree to which countries inflate the price of medicines.
In fact, while the leaders of those countries are happy to lobby for more aid and demand that pharmaceutical companies offer their drugs at cost, they routinely tax medicines until they are unaffordable. The domestic taxes and tariffs they impose directly prevent millions of their own citizens from receiving treatment.
Although India is often hailed as a purveyor of cheap generic drugs abroad, high tariffs at home limit patient access to critical drugs made by foreign manufacturers. In fact, only 35% of Indians have access to essential medicines, and less than 50,000 have access to domestically produced copycat ARVs for HIV. This is worrisome given that the Global Fund recently said that as many as 8.5 million Indians could be HIV positive.
In our report, we show that for every 1% reduction in import tariffs, poor countries can increase access to medicines by 1%. This means that for countries like Nigeria (20%), Uganda (10%), Kenya (10%), Congo (8.8%), Tanzania (10%) and Zimbabwe (7.5%) many tens of millions more people could afford access to valuable medicines if all tariffs were removed.
The statistical analysis shows that sales taxes are less harmful than tariffs at denying access, although what impact they have is definitely negative.
High import tariffs are often designed to protect domestic industries as much as to raise revenue (this is very much the case in India and Brazil). As a result, foreign drug manufacturers are less likely to sell to those markets in the first place. Adding insult to injury, countries like India (until recently) and Brazil are also much less likely to respect foreign patents, further decreasing access to essential medicines produced abroad.
Attacking patents and keeping high import tariffs hurt the sickest and poorest citizens in already poor nations.
Take, for instance, South Africa. Although South Africa waives all import tariffs on completed pharmaceuticals and most tariffs on the ingredients to make medicines, it still charges a sales tax of 14% on all medicines. For a South African AIDS patient paying for antiretroviral therapy, that 14% tax means that already malnourished AIDS patients have about $12 less to spend on food every month.
Over the past thirty years, deregulation and free trade have been embraced by the West as tools for economic growth. Empirically, wealth generation is associated with better health care.
Many poor countries have yet to learn this lesson. State-imposed price hikes, along with numerous and very burdensome bureaucratic barriers, strangle access to medicines in the developing world. Drug manufacturers oftentimes must jump through numerous bureaucratic hoops before they can sell their products, even if they have already complied with drug safety standards in the US, EU and Japan. There is little value in maintaining these barriers, except to the bureaucratic elite in poor countries, whose budget and survival depends on the perpetuation of onerous and difficult rules and regulations.
Western governments, NGOs and pharmaceutical companies are trying to improve the level of research and development on health problems afflicting developing nations. Yet for many diseases that kill millions, such as influenza, malaria and gastrointestinal ailments, vaccines and drugs exist, and they should be made available today.
The pleas for a greater Western commitment to tackle developing country problems ring hollow when the governments of poor countries maintain taxes, tariffs and bureaucracies that frustrate healthcare and ensure that their own citizens die needlessly.
Dr. Roger Bate a fellow of the American Enterprise Institute. His co-authored paper Taxed to Death is available online at http://www.fightingmalaria.org/research.php?ID=33.