A tax before dying: African regimes slap a tariff on AIDS drugs

AFTER THE CELEBRITIES and goodwill ambassadors have gone home, the campaign to bring low-priced drugs to HIV/AIDS sufferers in poor countries has met unexpected resistance: Governments receiving discounted essential medicines are taxing these products before selling them to the individuals for whom they are meant. The resulting difference in price is significant, in some cases critical.

In South Africa, Emma, who is 19 years old and HIV-positive, quietly tells her story. A month's supply of anti-retroviral triple therapy is likely to cost about $101 for the drugs alone. Of this amount, $14 is paid directly to the South African government in sales tax. To Emma, and many other women, the tax means she can't afford decent food for a whole week. She begins to cry and says, "My two children [HIV-positive as well, though currently not on treatment] also don't have enough to eat."

Governments impose tariffs and taxes for at least two reasons: to raise revenue and to protect domestic industries from international competition. There is little empirical evidence to support protectionism, which forces ordinary consumers to pay more for goods for the sake of powerful special interests. Historically, many wealthy countries have imposed tariffs, but a decade ago, the original 15 E.U. countries and the United States, among others, agreed to eliminate import tariffs, through the World Trade Organization, on around 7,000 pharmaceutical products.

Every nation enjoys the sovereign right to raise revenue. But the decision of cash-strapped governments to tax people on medicines that they had begged other nations to donate or sell at significant discount is, to say the least, odd.

Some take an even dimmer view. Republican senator Sam Brownback is so annoyed that he has introduced, with Democratic senator Mary Landrieu and Republican senator James Inhofe, the Elimination of Neglected Diseases Act. Section nine of the act states that "no agency or department of the United States may donate or otherwise supply medicines or medical devices ... to a foreign country if such country imposes import tariffs or other import duties on such medicines or medical devices."

The Geneva-based Global Fund to Fight AIDS, Tuberculosis, and Malaria has also taken notice and inserted this clause in its donation policies: "The assistance financed hereunder shall be free from any customs duties, tariffs, import taxes, or other similar levies and taxes (including value-added tax) imposed under laws in effect in the Host Country."

The reason two senators, the Global Fund, and assorted NGOs are angry is that their efforts to treat people like Emma are undermined by the very countries they want to help. The governments of Kenya, Tanzania, Uganda, India, Nigeria, Brazil, and Morocco--overseeing a combined population of about 1.5 billion--all impose financial barriers of over 19 percent on imported drugs.

Statistical analysis of tariff rates and access to essential medicines shows a significant relationship: A 1 percent reduction in tariffs will lead to a 1 percent increase in access. This conclusion (taken from "Taxed to Death," a paper I coauthored for the AEI-Brookings Joint Center) remains tentative given the quality of data and inevitable time lag for collection. Also there are other possible explanations for lack of access, such as illiteracy or low health care expenditure, but income level is included in this analysis. Nevertheless, the results strongly imply that tens of millions more people could gain access to medicine if their governments removed the tariffs on these life-saving drugs.

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While India has possibly 8.5 million HIV cases, the highest in the world, it also has one of the lowest figures for access to medicines, 35 percent. This sorry state has begun to change following a reduction in financial barriers from a shocking 61 percent to 20 percent--still quite high, but at least moving in the right direction.

Not everywhere is progress afoot, however. On January 1, 2005, both Kenya and Uganda introduced 10 percent import tariffs, in line with East African Customs Union protocols, on all imported medicines. The harm that these tariffs will cause is likely to be considerable. By the end of 2005, the Kenyan government, after failing to meet earlier targets, had hoped to treat 95,000 patients, an ambitious effort certain to be hobbled by the new tariffs. Dr. Patrick Orege, director of the National AIDS Control Council, says the tariff issue is "problematic" and needs to be "addressed urgently, so that we can meet our goals."

These tariffs not only make it difficult for HIV sufferers to receive medicine, but to receive food as well. The survival rate of HIV patients is strongly dependent on adequate nutrition, and without eating more, many HIV patients are unlikely to get the full benefit. Indeed, Emma's CD4 count (a measure of the health of the immune system) is improving but not as fast as many of her better-fed peers'. Meanwhile, the tax on her weekly allotment of drugs would buy several days' worth of bread, eggs, milk, fruit, vegetables, poultry, and meat.

Dr. Anban Pillay, director of pharmaceutical economy evaluations in the South African Department of Health, says the reduction or removal of value-added taxes on medicines had been under discussion for some time. "We've called for this ourselves, but there seems to be a number of reasons why the treasury is not willing to do so yet."

It doesn't appear that the South African treasury will budge any time soon, but pressure is building. If Brownback's act passes, U.S. donations will depend on the removal of tariffs. Given that the United States has plans to donate over $4 billion in health aid this year (a decent portion of which would go to drugs), this will be a powerful incentive to finally remove these barriers to the proper treatment of millions of HIV sufferers.

Roger Bate, a resident fellow at the American Enterprise Institute, is co-director of Africa Fighting Malaria.

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