Medical Death Taxes
Most of the poorest people on the planet have no access to essential drugs. And with some diseases flourishing–such as malaria and HIV/AIDS–one would have thought that politicians in these countries would have done everything they could to help their citizens.
The problem is that many developing countries impose tariffs and taxes that increase the cost of access and probably kill thousands. The statistical analysis concludes that a 1-percent reduction in tariffs will lead to a 1-percent increase in drug access.
India is a bad offender, and with the most HIV cases in the world and the poorest treatment system for any large country, it is doubly odious that combined taxes and tariffs on drugs are at least 20 percent, and more than 30 percent for some products (mind you this is better than 61 percent before the recent budget) Like Brazil, whose average combined rate is 38 percent, protection of domestic drug manufacturers plays a large role in India’s high tariff policies.
Even in poor African nations without influential domestic drug industries to protect, government-initiated barriers to medicinal access persist. Kenya (38 percent), Tanzania (36 percent), Congo (22 percent), Uganda (31 percent) and Nigeria (28 percent), all poor African nations, have very high combined tariff and tax rates.
With aggregate populations of more than 200 million people, and with very low access (except in Uganda, where healthcare is generally better), removal of these barriers would probably vastly increase access to drugs. And given that all these countries have significant infectious disease problems, especially HIV and malaria, anything that limits access to drugs kills the most vulnerable, especially children.
All rich countries have removed their financial barriers and it is time the poor countries did this as well. But to protect domestic industries, to raise revenue, and in some instances to further corruption of a powerful elite, removal of these barriers has so far not occurred.
In addition to these financial barriers, many poor countries have numerous and very burdensome bureaucratic barriers to drug access. Countries often require drug manufacturers to re-test and re-evaluate drugs locally before they can sell their products, even if they have already complied with drug safety standards in the United States, European Union and Japan. There is little value in maintaining these non-tariff barriers, except to the powerful; bureaucrat elite in poor countries whose budget and survival depends on the onerous and difficult rules and regulations.
Although all barriers should be removed by poor nations the most onerous are tariffs, because they act as a far greater hindrance to access to medicine than sales taxes. This is probably because sales tax is only used to raise revenue and not specifically as a barrier to entry (to protect domestic producers). On the other hand, high import tariffs indicate a more difficult trading environment, and protection of domestic industry, so that drug foreign manufacturers are less likely to sell to those markets in the first place.
As better healthcare is associated with wealthier economies, which in turn tend to be freer, with more open trade, import tariffs are also likely to reflect more repressive economic policies. Such policies in turn keep people poor and ill.
All sales taxes have a negative effect, however. South Africa, for example, still charges 14 percent and waiving that amount could make an enormous difference to the lives of many ill people, especially patients, a lot of whom are malnourished, having to pay for their own HIV antiretroviral therapy. Cameroon and the Republic of Congo, with life expectancies of 46.8 years and 48.3 years, respectively, both maintain an 18.7-percent VAT.
With increased calls for cheaper pharmaceuticals for people in the developing world, governments continue pushing drug prices to unaffordable levels with high taxes and tariffs. In Kenya, where the government failed to reach ART goals in 2004 (24,000 of a hoped for 45,000 patients received treatment), high taxes and tariffs dampen hopes for achieving the 2005 objective of providing ARTs for 95,000 people.
For the benefit of the health and well being of their citizens, it is time for governments in the developing world to remove debilitating barriers to accessing essential drugs.
Roger Bate is a resident fellow at AEI.
