More wealth from savings on VAT
TOP OF MIND - Rolan L. Bentulan (The Philippine Star) - January 22, 2019 - 12:00am

Health is wealth.

Trivial though it may seem, this quotation reminds us to be always on the look-out when it comes to our health. When our health is compromised, our store of wealth is consequently depleted. This is most especially true for those suffering chronic or long-term conditions that require maintenance medications.

Some of the most commonly prescribed maintenance medications are those for diabetes, high-cholesterol, and hypertension. Most people appropriate part of their wealth to avail of these kinds of medications, and it is notable that roughly 11 percent of the total payments made for such medications is comprised of the value-added tax (VAT). This may be the reason why the government, in its pursuit to better the lives of the Philippine people, exempted these medicines from VAT starting Jan. 1.

As you may recall, one of the changes brought about by the Tax Reform for Acceleration and Inclusion Law (TRAIN Law) is the exemption of VAT on sale of drugs and medicines prescribed for the treatment and/or prevention of diabetes, high-cholesterol, and hypertension. While the TRAIN Law itself took effect last Jan. 1, 2018, the VAT exemption of the abovementioned drugs was statutorily prescribed to take effect on Jan.1 this year.

In any case, this amendment brought about by the TRAIN Law resulted to the issuance of Revenue Regulations (RR) No. 25-2018, which was promulgated to specify the guidelines for the VAT-exemption of the sale of drugs and medicines prescribed for the treatment and/or prevention of diabetes, high-cholesterol, and hypertension.

This regulation pertinently provides that the VAT-exemption applies only to the sale by manufacturers, distributors, wholesalers and retailers of identified drugs and medicines. Importations, on the other hand, remain subject to VAT on importation. 

Moreover, only the drugs included in the “List of VAT-exempt diabetes, high-cholesterol and hypertension Drugs” shall be exempt from VAT. This list, which is to be identified by the Food and Drug Administration, shall be posted in the BIR website thru a Revenue Memorandum Circular (RMC).

Any update, such as registration of new and/or additional drugs and medicines, as well as de-registration of those previously published by the FDA, shall likewise be posted in the BIR website. It is important to note that the sale of drugs not included in the abovementioned list shall be subject to VAT. Hence, buyers should be familiarized with the said list in order to know whether the drugs they are purchasing are covered by the VAT exemption.

The regulations also remind manufacturers, distributors, wholesalers and retailers of the said exempt drugs to conform with the relevant invoicing and VAT reporting requirements. That is, manufacturers, distributors, wholesalers and retailers should make sure that they prominently indicate the term “VAT-Exempt” in the invoice issued for the sale of the said VAT-exempt drugs.

As per current invoicing regulations, failure to display prominently the words “VAT-exempt sale” shall make the relevant transaction taxable and the issuer shall be liable to pay the VAT thereon. Moreover, input VAT attributable to the said sale can no longer be credited against output VAT. Instead, the regulations provide that it shall be treated as an expense to be allowed to recover the same.

As for the roles and responsibilities of the relevant government agencies, we note that last Jan. 10, the BIR issued RMC No. 2-2019 which enumerates the roles and responsibilities of the Food and Drug Administration, Department of Health, Bureau of Internal Revenue and Department of Finance in ensuring the smooth and seamless implementation of the law.

Particularly, the roles of the FDA are to identify the drugs which are specifically prescribed for the treatment and/or prevention of diabetes, high-cholesterol and hypertension to be included in the list of VAT-exempt drugs and regularly update the same when necessary. The DOH on the other hand, is responsible for the dissemination of the said list of VAT-exempt drugs for diabetes, high-cholesterol, and hypertension, updating the said list in the Electronic Drug Price Monitoring Systems (EDPMS) regularly based on the list of drugs submitted by the FDA, and monitor and study the impact of the VAT exemption on the affordability and access of medicines for patients.

Moreover, the BIR is responsible for the formulation of  the appropriate revenue issuance to implement the availment of the VAT-exemption and publish the list of VAT exempt drugs and any updates thereto through the issuance of a Revenue Memorandum Circular. Finally, the Department of Finance is task to provide for policy guidance on the implementation of the VAT exemption and monitor the revenue impact of the same. 

Ultimately, however, it is hoped that what the new year ushers in for our readers is a healthful 2019. While the VAT-exemption offers financial relief in the form of tax savings, it is still more important that we take good care of our health. After all, 100 percent savings from not buying these maintenance medications is always greater than the 11 percent savings on VAT.

Rolan L. Bentulan is a supervisor from the tax group of KPMG R.G. Manabat & Co. (KPMG RGM&Co.), the Philippine member firm of KPMG International. KPMG RGM&Co. has been recognized as a Tier 1 tax practice and Tier 1 transfer pricing practice by the International Tax Review.

This article is for general information purposes only and should not be considered as professional advice to a specific issue or entity.

The views and opinions expressed herein are those of the author and do not necessarily represent the views and opinions of KPMG International or KPMG RGM&Co. For comments or inquiries, please email or

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