Environmental tax will impact firms that use China-made drug intermediates say experts

By Gareth Macdonald contact

- Last updated on GMT

Gettyimages/masterSergeant
Gettyimages/masterSergeant

Related tags: People's republic of china, Pharmacology

China’s environmental tax will mean higher costs for drug and API firms that rely on intermediates made in the country say industry experts.

The “Environmental Protection Tax Law” (here​ in Mandarin), introduced last month and due to be rolled out in April, requires that manufacturers which release “taxable pollutants” pay local Government a levy based on the number of units discharged.

The tax replaces the previous “pollution discharge fee” system that saw local environmental authorities collect fees based on the volume of pollutant released. The idea is that switching to a tax and localising oversight will encourage firms to adopt greener practices.

From China

China is a key source of intermediates and active pharmaceutical ingredients (API) for the global drug industry both directly, and because it is a major​ supplier to the Indian chemical and pharmaceutical sector.

One API industry insider told us reliance on Chinese intermediates is already a challenge, explaining, “We’re facing big price rises on APIs from India as result of higher intermediate prices out of China and or delayed API production in India due to non-supply of intermediate from China​.”

He cited Government enforced shutdowns as an example, telling us “One of our Chinese suppliers had to shut up shop for 40 days while the big Chinese Communist Party meeting was held end of last year, and they didn’t want pollution in the area​.” 

He predicted the new environmental tax would exacerbate the situation.

2018 has the potential to be quite turbulent for medicine manufacturers as it difficult to obtain forward pricing and availability for many APIs until India gets better visibility of the intermediates’ situation in China,” ​he said, adding “This will affect finished dosage forms exported from India too​.”

David Deere, chief commercial officer at China-focused contract manufacturer PaizaBio, also predicted the environmental tax would have a wide-ranging impact.

He told us “75% of imported API into Indian's Pharmaceutical sector comes from China and 40% of US generics comes from India so any COG impact in this chain will likely spill over into end-price​.”

Changing environment

However, while he expressed concerns about the impact on intermediate and API prices, Deere welcomed the environmental tax as a positive environmental move.

He said, “China's environmental taxation/pollution emission permit system and enforcement system of the past leaves a lot to be desired.

What could be going on here is that Beijing, by implementing an updated system, with all taxes going to local authorities, has made the Provinces 'own it.'

Now supervision and enforcement responsibility is not only decentralized, but accountable​," he said, adding, “I expect that Beijing has established much tighter audit requirements​.”

EFPIA response

The European Federation of Pharmaceutical Industries and Associations (EFPIA), a Brussels-based trade association that represents the drug industry, was also positive about the environmental impact of the new tax.

A representative told us, “We have always said that we support that environmental regulations should be part of environmental law. Therefore we view the Chinese initiative positively​.”

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