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Romanian clawback - between over taxation and sales expropriation - Doing Business | DOINGBUSINESS.RO

  |  08.11.2012

Romanian clawback - between over taxation and sales expropriation

What is clawback in Europe and why is it applied on some European pharmaceutical markets?

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Most of the western economies are facing year by year important budget pressure generated by the increased demand coming from the healthcare systems. Due to the social, economic and medical developments people are living more, are living healthier and, consequently, are consuming more resources after retiring.

 

Medicines represent almost a quarter of the European public health budgets annually, increasing up to an amount of 228 billion EUR in 2011. The pharmaceutical industry is leading the top of the investments in research and development all over the world - only in Europe the investments reached 27.5 billion EUR last year. The outputs of this research are translated into more efficient medicines which enter the markets, most of them being covered by the social reimbursement systems.

 

The healthcare expenses grow faster than the growth of the economies. The budget allocation for health has constantly increased in Europe as percentage of GDP from 3,5% in the sixties up to 9,6% in the present and from 5.1% in US up to 17,4% nowadays. Romania is still the last country in Europe as far as budget allocation is concerned. Less than 4% of GDP is allocated to health. Despite the objectives of most Governments to increase it at least to 6% they did not find the political resources to do it.

 

This is why some states have invented the clawback tax: to share with the pharmaceutical industry the expenditures generated by the annually growth of medicines consumption. Fair enough. The states use a “claw” to reverse “back” some of the money spent for medicines. As an example: last year the amount a country consumed on medicine sums up to 100. This year the projection is 110. Whatever exceeds 110 will be partially covered by the pharmaceutical industry which is “guilty” to create products that make people live better.

 

How the Romanian Governments have implemented this tax?

 

They allocated much less than the real consumption and imposed the industry to cover both the deficit and the growth. In real figures the situation is as follows Romania spent 6,8 billion RON from public funds for reimbursed medicines in 2011 and allocated 5,7 billion RON for 2012. The consumption for this year is estimated to be 7,5 billion RON (10% increase). The state says: “We have “overspent” 1,8 billion RON for the treatments of the Romanian insured citizens. The producers should pay this amount.”

 

How fair is the tax?

 

The end-user price contains the producers’ price, which is fixed by law at the minimum European level plus the distributors’ margins, the pharmacies margins (also regulated by law) and VAT. The health funds reimburse the medicines directly at pharmacies at the retail price. Despite the fact that the producers price represents just 70% of the retail price the base for the tax is calculated at the end-user level.

 

This is unacceptable because the producers are forced to pay a tax for the incomes of other economic entities and a tax per tax (VAT). After two years of negotiations the actual Government has decided to eliminate the VAT from the base of calculation starting from October 1st.

 

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