The federal government plans to introduce significant tax relief for the pharmaceutical industry, possibly a reduction in medicine prices, in the upcoming federal budget for FY2026–27 in Pakistan.
According to sources, the 3 percent value-added tax (VAT) may be eliminated on imported finished pharmaceutical and diagnostic products, which is listed under the Twelfth Schedule.
This tax had effectively increased the tax burden to about 4 percent in a price-regulated sector, straying from the intended 1 percent final tax structure outlined in the Eighth Schedule.
However, the current sales tax exemption under Entry No. 166 of the Sixth Schedule will not be broadened to cover more government institutions, departments, or general hospitals, and will stay limited to charitable hospitals.
The listed pharmaceutical sector showed strong financial results in 2025, with profits climbing 78 percent year-on-year to Rs. 42.2 billion, driven by increased sales, reduced input costs, and lower financial charges.
Experts recommend zero-rated tax system for medicines
There have been several suggestions by experts that also include reinstating a zero-rated sales tax system for DRAP-registered pharmaceutical products and exempting packaging materials and diagnostic kits to lower production costs and reduce medicine prices.
Sources indicate that the pharmaceutical sector of Pakistan has major potential not only in healthcare delivery but also as a valuable export industry for medicines, if it receives support through targeted and growth-focused tax reforms.
Nevertheless, the existing tax system continues to hinder investment, reinvestment, and expansion, while pharmaceutical exporters are under growing fiscal pressure.
