Few shop types have a more mixed VAT basket than a pharmacy. One basket can hold an imported antibiotic, a locally made painkiller, a toothbrush and a blood pressure check. Each is treated differently under Uganda's VAT Act, and getting the treatment wrong either overcharges customers or leaves VAT unclaimed. This post sets out what the Uganda Revenue Authority (URA) and the published summaries say about medicines and medical services, and what it means at the till.
Three treatments, not one
Uganda's VAT has three categories, as the URA's VAT page explains. Standard-rated supplies carry VAT at 18%, and cover anything not listed in the exempt or zero-rated schedules of the VAT Act. Zero-rated supplies carry VAT at 0%. Exempt supplies carry no VAT at all. The distinction between the last two sounds academic but decides whether you can recover the VAT on your costs.
Where medicines fall
According to the URA page, the zero-rated schedule includes drugs and medicines manufactured in Uganda, alongside exports and locally grown and milled cereals. PwC's Uganda tax summary, last reviewed on 12 January 2026, lists "drugs and medicines manufactured in Uganda" among zero-rated supplies and "imported drugs, medicines and medical sundries" among exempt supplies. The same summary lists "medical and health services" as exempt, and medical oxygen and cylinders too.
So, for a typical pharmacy:
- A medicine manufactured in Uganda is zero-rated: VAT is charged at 0%, and the supply counts as taxable.
- An imported medicine or medical sundry is exempt: no VAT is charged, and the supply is not taxable.
- A consultation, injection or other health service is exempt.
- Cosmetics, toiletries, baby products and most general merchandise are standard-rated at 18%.
The schedules are amended from time to time, so confirm the current wording for any product line that matters to your margin.
Why zero-rated beats exempt
The URA page notes that excess input VAT can be offset or refunded, and PwC's summary makes the general point that zero-rating is preferable to exemption because VAT on costs incurred in making a zero-rated supply can be recovered, while VAT on costs incurred in making an exempt supply cannot. For a pharmacy that means the VAT paid on rent, software, shelving and electricity can be attributed in part to zero-rated local medicines and standard-rated merchandise, but not to the share of the business that is exempt imported medicines and services. Where a business makes both taxable and exempt supplies, the input VAT has to be apportioned, which is a job for your accountant, but only possible if the sales records separate the categories.
Do you need to register at all?
The URA page states that a person dealing only in exempt supplies is not expected to register for VAT. A drug shop that sells only imported medicines may therefore be outside VAT entirely. A pharmacy that also sells local medicines (zero-rated) and general merchandise (standard-rated) is making taxable supplies, and must register once its taxable turnover crosses the registration threshold. The URA page gives the current threshold and the rule that an application must be made within 20 days of the end of the period in which the obligation arose; check the figure there rather than relying on memory, as it has changed over the years. The URA page also notes that voluntary registration below the threshold is possible at the Commissioner General's discretion for a business with a fixed place of business and proper records.
What this means at the till
Every product needs a tax setting, applied once, that follows it onto every receipt. The practical setup is three tax groups: exempt, zero-rated and standard. New products are assigned a group when they are created, with imported medicines and sundries defaulting to exempt, locally manufactured medicines to zero-rated and everything else to standard. The receipt then shows each line's treatment and the VAT total only on the standard-rated lines, which is what the customer and the auditor both expect.
The monthly return draws on the same data. The URA page says returns and payment are due within 15 days after the end of the month, so the sales report by tax group should be ready on the first working day, not the fourteenth.
Two mistakes to avoid
Charging 18% on medicines. It happens when a product is created in a hurry with the default tax setting. The customer pays more than the law requires, and the pharmacy has to account for VAT it should never have collected.
Treating everything as exempt. The opposite error. If local medicines and merchandise are booked as exempt, the business under-declares taxable sales and forfeits the input VAT it could have recovered.
The tax rules for medicines are stable enough to set up once. The discipline is in assigning the right group to every new product on the day it arrives.
Sources
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