News | January 21, 2014

Could Price Increases In The US Market Spark A Legislation Reversal?

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By Marcus Johnson

Americans are about to see a huge price increase in their everyday medicine and prescription drugs, and it’s going affect millions of people. The new valuation of the value added tax, or VAT, is 17.5%, and new legislation has made that tax applicable to prescription drug products that it initially didn’t cover. The price increase will have a number of effects for both drug consumers and manufacturers, and the increase isn’t popular with either. Most Americans haven’t heard of the changes, so they will likely be informed the next time they go to the pharmacy and try to pick up their prescription drugs.

When faced with a new tax, there are a number of different things that a company can do. Most companies in the pharmaceutical industry have already indicated that they will have no choice but to pass on these new costs to the customer, in order to maintain their profit margins. These added costs aren’t only going to affect consumers though. There are likely to be large job cuts across the pharmaceutical industry, which will affect local producers.

The new taxes associated with local production of medicine will likely lead many businesses to start importing medicine from Europe and other foreign producers. If favoring importation becomes a long term trend, then job losses could become permanent, or even more wide spread in the industry. In order to preserve US jobs, and by extension federal tax dollars, the government could consider reversing legislation expanding the VAT tax to prescription medicine and other health products. A reversal would be huge, and could spur more investment in the United States pharmaceutical industry if future trade liberalization is perceived to be on the horizon.