Clarification on the Treatment and Reporting Requirements of Input Tax as of December 31, 2018 Relative to Value-Added Tax (VAT) Exempt Medicines Pursuant to Section 109 (1) (AA) of the National Internal Revenue Code of 1997, as Amended by Republic Act (RA) No. 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law

March 4, 2019 REVENUE MEMORANDUM CIRCULAR NO. 034-19 SUBJECT : Clarification on the Treatment and Reporting Requirements of Input Tax as of December 31, 2018 Relative to Value-Added Tax (VAT) Exempt Medicines Pursuant to Section 109 (1) (AA) of the National Internal Revenue Code of 1997, as Amended by Republic Act (RA) No. 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law TO : All Internal Revenue Officials, Employees and Others Concerned This Circular is issued to clarify the treatment and reporting requirements of input tax pertaining to drugs and medicines prescribed for diabetes, high-cholesterol and hypertension purchased on or before December 31, 2018 by manufacturers, distributors, wholesalers and retailers which remained unsold as of December 31, 2018. SDHTEC Pursuant to Section 34 of RA No. 10963 or the TRAIN Law, the sale of drugs and medicines prescribed for diabetes, high-cholesterol and hypertension shall be exempt from VAT beginning January 1, 2019. Considering that input tax attributable to VAT-exempt sale cannot be passed on to the buyer, the following shall be strictly observed by all concerned: 1. Inventory list as of December 31, 2018 of drugs and medicines which became VAT-exempt beginning January 1, 2019 shall be required from all manufacturers, wholesalers, distributors and retailers regardless of whether or not there is an existing excess input tax. 2. The inventory list shall include all drugs and medicines on hand, imported and locally manufactured, using the format prescribed in ANNEX "A". HSAcaE 3. The inventory list shall be filed with the Large Taxpayer Service/Revenue District Office where the taxpayer is registered on or before April 25, 2019 as an attachment to the Quarterly VAT Declaration Form (BIR Form 2550Q) for the first quarter of 2019. 4. As the sale of VAT-exempt drugs and medicines are made, the input tax corresponding to the sale shall be closed to cost or expense. Illustration 1: On December 2018, the taxpayer purchased medicines prescribed for Diabetes, High-Cholesterol and Hypertension in the amount of P300,000.00 which were sold on January 2019 with 30% mark-up. As of December 31, 2018, the taxpayer's excess input tax credit is P150,000.00 and the summary of the taxpayer's inventory list shows the following: AScHCD Amount Input Tax Imported Medicines Medicines Prescribed for Diabetes, High-Cholesterol & Hypertension P300,000.00 36,000.00 Other Imported Medicines 700,000.00 84,000.00 Locally Manufactured Medicines Medicines Prescribed for Diabetes, High-Cholesterol & Hypertension - - Other Locally Manufactured Medicines 250,000.00 30,000.00 TOTAL P1,250,000.00 150,000.00 =========== =========== The accounting entries to record the transactions will be: To record the purchase made in December 2018: Inventory 300,000.00 Input Tax 36,000.00 Cash or Accounts Payable 336,000.00 To record the sale made in January 2019: Cash or Account Receivable 390,000.00 Sales/Revenue 390,000.00 To record cost of sale/deduction from inventory: Cost of Sale 300,000.00 Inventory 300,000.00 To close the corresponding input tax allocable to VAT-exempt sale: Cost of Sale/Expense 36,000.00 Input Tax 36,000.00 5. When filing BIR Form 2550M/2550Q, the input tax corresponding to the sale shall be deducted from the taxpayer's allowable input tax as shown below: HESIcT All concerned revenue officials and employees are hereby enjoined to give this circular as wide a publicity as possible. Date Issued: March 13, 2019. (SGD.) CAESAR R. DULAY Commissioner of Internal Revenue ANNEX A Inventory List of Drugs and Medicines Prescribed for Diabetes, High-Cholesterol and Hypertension Name of Taxpayer : xxxxxxxxxxxxxxxx Tax Identification Number : 000-000-000-00000 As of : December 31, 2018 I. IMPORTED MEDICINES A. Drugs and Medicines Prescribed for Diabetes, High-Cholesterol and Hypertension Item No./ Code Brand Name Generic Name Dosage/ Packaging Qty Unit Cost Amount Input Tax xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx xxx Xxx xxx xxx Total xxx xxx II. LOCALLY-MANUFACTURED MEDICINES A. Drugs and Medicines Prescribed for Diabetes, High-Cholesterol and Hypertension Item No./ Code Brand Name Generic Name Dosage/ Packaging Qty Unit Cost Amount Input Tax xxx xxx Xxx xxx xxx xxx xxx xxx xxx xxx Xxx xxx xxx xxx xxx xxx Total xxx xxx GRAND TOTAL xxx xxx CERTIFICATION I hereby certify that the information provided herein is true, correct and based on existing records, and I hold myself liable, criminally or civilly, for any misrepresentation or false statement. AcICHD In witness thereof, I have hereunto affixed my signature this __________ day of ________________, 20____ at ____________________________, Philippines. ________________________________ Signature over Printed Name of Authorized Signatory Affiant Notary Public Until ___________ PTR No. ________ Issued at ________ On _____________ Doc. No. _______ Page No. _______ Book No. _______ Series No. ______