Nepal is facing increasing imports, slow industrial growth, unemployment, and growing dependence on foreign products. In this situation, the pharmaceutical industry can play an important role in strengthening the economy, promoting industrial development, and achieving self-reliance. Although Nepal has 84 pharmaceutical industries with good production capacity, around 55% of medicines and pharmaceutical products are still imported from neighboring countries.
One major reason for this dependency is the extremely low customs duty imposed on imported medicines. Although the official customs duty rate is 5%, various rebates and concessions under different categories reduce the effective duty to a negligible level. As a result, imported medicines become comparatively cheaper, while Nepali pharmaceutical industries face production costs that are 15% to 20% higher than those of imported products.
Domestic industries incur significantly higher expenses in areas such as electricity, transportation, labor, financing, inventory management of raw and packaging materials, and land acquisition. In addition, they are subject to comparatively higher taxes on raw and packaging materials. Consequently, most domestic pharmaceutical industries are operating below their production capacity, and some are experiencing severe financial distress.
Therefore, increasing the customs duty on imported finished medicines to at least 10% or higher is necessary to protect domestic industries and promote Nepal’s industrial development. However, essential and lifesaving medicines that are not produced in Nepal may continue to be imported without customs duty to ensure public access to healthcare services.
Higher customs duty would encourage local production and reduce dependence on imports. It would help save foreign currency, improve the trade balance, attract industrial investment, and strengthen Nepal’s manufacturing sector. At a time when Nepal is facing trade deficits and pressure on foreign exchange reserves, promoting domestic pharmaceutical production has become both an economic and strategic necessity.
A stronger pharmaceutical industry would also create many employment opportunities. The sector supports pharmacists, chemists, engineers, laboratory staff, packaging workers, transport services, marketing professionals at different levels, and distribution networks. Expansion of domestic pharmaceutical manufacturing could create more than 50,000 direct and indirect jobs, helping reduce unemployment and labor migration while increasing government revenue.
In addition, stronger domestic production would benefit the government through customs revenue, VAT, corporate taxes, employee income taxes, and other economic activities. Unlike import-based businesses, local manufacturing creates long-term economic value within the country.
The COVID-19 pandemic showed the risks of depending too much on imported medicines and medical supplies. Global supply disruptions, border closures, and foreign currency shortages can create serious problems for countries without strong local production. Therefore, pharmaceutical self-reliance is important for public health security, emergency preparedness, and national stability.
Many countries with successful pharmaceutical industries have supported local manufacturers through customs protection, tax incentives, production support, and export promotion policies. Nepal can also adopt similar balanced policies while ensuring medicine quality and affordability.
Domestic pharmaceutical industries are required to undergo annual testing of all their products, whereas imported medicines are often approved based only on documents and certificates provided by the manufacturers, without independent testing in Nepal. Therefore, every imported pharmaceutical product and each production batch should be tested in Nepal before being supplied or marketed. Also, Nepal should permit the supply and marketing only of pharmaceutical products manufactured by industries that have been supplying medicines for at least four years in SRAC (Stringent Regulatory Authority Countries), with proper supporting evidence. Ultimately, Nepali citizens are the end users of these medicines and are directly affected by the supply of inferior-quality pharmaceutical products.
The government can increase customs duty on imported medicines that are already produced in Nepal while keeping lower duties on raw materials, Active Pharmaceutical Ingredients (APIs), and lifesaving medicines not manufactured locally. Additional support such as soft loans, refinancing facilities, energy incentives, tax relief, and preference for Nepali medicines in public institutions could help domestic industries become more competitive. Such policies would strengthen local manufacturing, create jobs, increase government revenue, reduce import dependence, and help build a more self-reliant and economically stronger Nepal.
Mahesh Prasad Pradhan is the Immediate Past President of the Association of Pharmaceutical Producers of Nepal (APPON).
