Taxed to Death

Developing countries claim the West cheats them out of cheap drugs. But they are often the ones erecting barriers to their citizens' health.

By Roger Bate

October 19, 2009, 5:59 PM

In recent years, the amount of aid for developing countries has increased, and the price of many drugs has fallen. So why does one third of the world's population still lack access to proper healthcare? To a large degree, the fault lies with the poor countries themselves. Many charge high tariffs on life-saving medicines and equipment, sometimes even taxing products that are donated for free. Foreign drug manufacturers must often jump through numerous bureaucratic hoops to get their products to those who need them most.

In recent years, the amount of aid for developing countries has increased, and the price of many drugs has fallen. So why does one third of the world’s population still lack access to proper healthcare? To a large degree, the fault lies with the poor countries themselves. Many charge high tariffs on life-saving medicines and equipment, sometimes even taxing products that are donated for free. Foreign drug manufacturers must often jump through numerous bureaucratic hoops to get their products to those who need them most.

These regulatory constraints are imposed on a wide variety of essential medical products, from bandages and bed nets, to insecticides and raw materials for drug production. Tariffs can run as high as 16 percent in India, 18.3 percent in Morocco, and more than 50 percent in Iran. In a study of 53 developing countries, my research team found that when all the duties and taxes are added up, the average cost of medicines and medical equipment is routinely inflated by more than 20 percent.

Naturally, it is the right of any nation to raise income as it sees fit. But governments’ own policies are restricting the ability of their people to buy drugs. For example, in Nigeria — where less than 20 percent of the population has access to essential medicines — legal costs, port and currency charges, and demands for bribes all add a significant markup to drugs that are already too expensive to begin with. If these tariffs were lowered, it would dramatically increase access to pharmaceuticals. That’s an important prospect for countries where high taxes are levied, such as Brazil, China, India, and Nigeria, which collectively claim nearly half the world’s population. Only the bureaucratic elite in these developing nations benefit from this arrangement, for their budget and survival depends on the perpetuation of onerous rules and regulations.

Even in places where tariffs are waived, other barriers remain. South Africa, for instance, does not place levies on pharmaceuticals, but it still charges a sales tax of 14 percent on all medicines. For an already malnourished South African AIDS patient paying for antiretroviral therapy, that translates to a monthly loss of about $14, which could have been spent on food. Pleas for a greater Western commitment ring hollow when the governments of developing countries maintain taxes and tariffs that lead to so many needless deaths.

Roger Bate is a resident scholar at the American Enterprise Institute specializing in international health policy.