Implementing Guidelines on the VAT Exemption on the Sale or Importation of Drugs Prescribed for Cancer, Mental Illness, Tuberculosis, and Kidney Diseases under Republic Act No. 8424

June 23, 2021

DOH-DOF-FDA-BIR-BOC JOINT ADMINISTRATIVE ORDER NO. 2021-0001

IMPLEMENTING GUIDELINES ON THE VALUE-ADDED TAX (VAT) EXEMPTION ON THE SALE OR IMPORTATION OF DRUGS PRESCRIBED FOR CANCER, MENTAL ILLNESS, TUBERCULOSIS, AND KIDNEY DISEASES UNDER REPUBLIC ACT NO. 8424, OTHERWISE KNOWN AS THE NATIONAL INTERNAL REVENUE CODE OF 1997, AS AMENDED BY REPUBLIC ACT NO. 11534, OTHERWISE KNOWN AS THE "CORPORATE RECOVERY AND TAX INCENTIVES FOR ENTERPRISES ACT (CREATE)"

Pursuant to Section 109 (1) (AA) (ii) of the NIRC, as amended by the CREATE Act, the sale or importation of drugs prescribed for cancer, mental illness, tuberculosis, and kidney diseases shall be exempt from VAT beginning January 1, 2021.

In relation to this, the Department of Health (DOH), under Republic Act No. 9502 otherwise known as the "Universally Accessible Cheaper and Quality Medicines Act of 2008," is mandated to ensure the affordability and accessibility of medicines to promote the health and well-being of Filipinos. Specifically, the DOH is tasked to institute a drug price monitoring and regulation system under Chapter V, Rule 26 of the Implementing Rules and Regulations of the said Act.

To implement the above provisions, the Secretaries of the Department of Finance (DOF) and the DOH, in coordination with the Commissioner of the Bureau of Internal Revenue (BIR), the Commissioner of the Bureau of Customs (BOC), and the Director-General of the Food and Drug Administration (FDA), hereby promulgate the following guidelines:

I. OBJECTIVES

These implementing guidelines are being issued to achieve the following objectives:

1. To establish the general guidelines in the implementation of the VAT exemption on the sale or importation of drugs prescribed for cancer, mental illness, tuberculosis, and kidney diseases; and

2. To delineate the roles of the DOH, DOF, FDA, BIR, and BOC for the proper implementation of the above.

II. COVERAGE AND SCOPE

These implementing guidelines shall apply to the sale or importation by manufacturers, distributors, wholesalers and retailers of drugs prescribed for cancer, mental illness, tuberculosis, and kidney diseases in its final form.

The VAT-exemption granted to persons under Republic Act No. 7432, otherwise known as the "Senior Citizens Act of 1992," as amended, and Republic Act No. 7277, otherwise known as the "Magna Carta for Persons with Disability," as amended, on the VAT-exempt sales of drugs to senior citizens and persons with disabilities, respectively, shall not be covered by this issuance.

III. DEFINITION OF TERMS

For purposes of these implementing guidelines, the following terms are defined as follows:

1. Cancer refers to a generic term for a large group of diseases that can affect any part of the body. Other terms used are malignant tumors and neoplasms. One defining feature of cancer is the rapid creation of abnormal cells that grow beyond their usual boundaries, and which can then invade adjoining parts of the body and spread to other organs.

2. Distributor or Wholesaler means any establishment that purchases drugs prescribed for the treatment of cancer, mental illness, tuberculosis, and kidney diseases, in its final form, for wholesale distribution to other establishments or outlets.

3. Drugs, for purposes of these guidelines, refer to pharmaceutical products that pertain to chemical compounds or biological substance, other than food, intended for use in the treatment of cancer, mental illness, tuberculosis, and kidney diseases, as approved and identified by the FDA.

4. Electronic Drug Price Monitoring System (EDPMS) refers to the computer/web-based solution of the DOH with functionalities to capture, process, store and generate reports on drugs and inventories from drug establishments (Manufacturers, Distributor/Importer/Exporter) and drug outlets.

5. Kidney disease refers to a heterogeneous group of disorders affecting kidney structure and function. Duration of greater than three (3) months is defined as chronic, while duration of three (3) months or fewer is termed acute.

6. Manufacturer refers to any establishment engaged in any and all operations involved in the production of drugs prescribed for the treatment of cancer, mental illness, tuberculosis, and kidney diseases including preparation, processing, compounding, formulating, filling, packaging, repackaging, altering, ornamenting, finishing and labeling with the end in view of its storage, sale or distribution: Provided, That the term shall not apply to the compounding and filling of prescriptions in drugstores and hospital pharmacies.

7. Mental Health Condition (Mental Illness) refers to a neurologic or psychiatric condition characterized by the existence of a recognizable, clinically-significant disturbance in an individual's cognition, emotional regulation, or behavior that reflects a genetic or acquired dysfunction in the neurological, psychosocial, or developmental process underlying mental functioning. The determination of neurologic and psychiatric conditions shall be based on scientifically-accepted medical nomenclature and best available scientific and medical evidence.

8. Retailer refers to any establishment that procures drugs prescribed for the treatment of cancer, mental illness, tuberculosis, and kidney diseases, in its final form, and licensed by the FDA to carry on the retail business of sale of drugs directly to the general public.

9. Tuberculosis (TB) refers to an infectious but curable disease caused by bacteria called Mycobacterium tuberculosis. It is transmitted from a TB patient to another through coughing, sneezing and spitting and while the bacterium usually affects the lungs, it may also affect the bone and other organs like the kidney and the liver.

IV. GENERAL GUIDELINES

1. The sale or importation by manufacturers, distributors, wholesalers and retailers of drugs prescribed for the treatment of cancer, mental illness, tuberculosis, and kidney diseases in its final form shall be exempt from VAT imposed under Section 106 of the NIRC, as amended;

2. The exemption from VAT under these guidelines shall only apply to the sale or importation by manufacturers, distributors, wholesalers, and retailers of drugs and medicines included in the "List of VAT-exempt Drugs for Cancer, Mental Illness, Tuberculosis, and Kidney Diseases";

3. In addition to the current list of drugs that the DOH is monitoring through the Electronic Drug Price Monitoring System (EDPMS), all drugs included in the VAT exemption list should also be reported by all manufacturers, distributors and retailers in the EDPMS in accordance with existing DOH guidelines; and

4. Within 60 days upon the effectivity of these guidelines, all manufacturers, distributors, wholesalers, and retailers shall submit to the DOH a sworn statement (Annex A) containing the wholesale price, suggested retail price and actual retail price prior to and after the effectivity of these guidelines.

V. ROLES AND RESPONSIBILITIES

For purposes of full implementation of Section 109 (1) (AA) (ii) of the NIRC, as amended, apart from the inherent functions in their charters, the following government agencies are mandated to perform the following roles and responsibilities:

A. Department of Health

1. Provide technical guidance for the proper implementation of the subject provision;

2. Disseminate the "List of VAT-exempt Drugs for Cancer, Mental Illness, Tuberculosis, and Kidney Diseases" provided by FDA;

3. Through the Pharmaceutical Division:

a. Monitor and study the impact of the VAT exemption of drugs for cancer, mental illness, tuberculosis, and kidney diseases on the affordability and access of medicines for patients;

b. Update the list of drugs in the EDPMS regularly based on the list of drugs submitted by the FDA;

c. Oversee and manage the overall implementation of these guidelines; and

d. Coordinate with the relevant agencies for the proper implementation of these guidelines.

B. Department of Finance

1. Provide fiscal policy guidance on the implementation of the VAT exemption of drugs for cancer, mental illness, tuberculosis, and kidney diseases; and

2. Monitor the revenue impact of the VAT exemption.

C. Food and Drug Administration

1. Identify the drugs which are specifically prescribed for the treatment and/or prevention of cancer, mental illness, tuberculosis, and kidney diseases to be included in the "List of VAT-exempt Drugs for Cancer, Mental Illness, Tuberculosis, and Kidney Diseases";

2. Regularly update the "List of VAT-exempt Drugs for Cancer, Mental Illness, Tuberculosis, and Kidney Diseases," when drugs are registered or de-registered;

3. Provide the DOH, the BIR and the BOC the "List of VAT-exempt Drugs for Cancer, Mental Illness, Tuberculosis, and Kidney Diseases" and any update thereto thirty (30) days prior the beginning of every quarter;

4. Require the posting of the "List of VAT-exempt Drugs for Cancer, Mental Illness, Tuberculosis, and Kidney Diseases" conspicuously in the place of business of manufacturers, wholesalers, distributors, and retailers of the VAT-exempt drugs, hospital pharmacies and other FDA-licensed establishments; and

5. Address issues relating to the "List of VAT-exempt Drugs for Cancer, Mental Illness, Tuberculosis, and Kidney Diseases" and the proper dispensation of medicines under Republic Act No. 9711 otherwise known as the "Food and Drug Administration Act of 2009," Republic Act No. 10918 otherwise known as "Philippine Pharmacy Act," and other applicable laws.

D. Bureau of Internal Revenue

1. Formulate appropriate revenue issuance/s to implement the availment of the VAT-exemption on the sale or importation of drugs prescribed for cancer, mental illness, tuberculosis and kidney diseases;

2. Issue Authority to Release Imported Goods (ATRIG) on all VAT-exempt importations of drugs prescribed for cancer, mental illness, tuberculosis and kidney diseases through the Revenue District Office (RDO) having jurisdiction over the port of entry per Revenue Memorandum Order (RMO) No. 25-2020.

3. For the information of taxpayers, publish the "List of VAT-exempt Drugs for Cancer, Mental Illness, Tuberculosis, and Kidney Diseases" and any updates thereto through the issuance of a Revenue Memorandum Circular;

4. Provide revenue/foregone revenue data to the Department of Finance; and

5. Address complaints on violation of invoicing requirements and other VAT-related issues in the availment of the exemption.

E. Bureau of Customs

1. Issue Customs Memorandum Circular (CMC) on the "List of VAT-exempt Drugs for Cancer, Mental Illness, Tuberculosis, and Kidney Diseases" including any updates thereto;

2. Process the importation thereof, subject to the submission of the following documents:

a. Authority to Release Imported Goods (ATRIG) from the BIR;

b. Goods Declaration;

c. Import Bill of Lading/Air Waybill; and

d. Import Invoice and Packing List.

3. Provide revenue/foregone revenue data to the Department of Finance.

VI. PENALTIES AND OTHER SANCTIONS

The applicable penalties under the NIRC, as amended, the Customs Modernization and Tariff Act, and other laws shall apply.

VII. SEPARABILITY CLAUSE

In the event that any provision or part of this implementing guidelines is declared unenforceable or rendered invalid by any court of law or competent authority, those provisions not affected by such declaration shall remain valid and effective.

VIII. REPEALING CLAUSE

All administrative issuance, circular and memorandum inconsistent with this implementing guidelines are hereby withdrawn, repealed and/or revoked accordingly.

IX. EFFECTIVITY

These guidelines shall take effect immediately following its complete publication in the Official Gazette or a newspaper of general circulation.

Adopted this 23rd day of June, 2021 in Manila, Philippines.

(SGD.) FRANCISCO T. DUQUE IIISecretary, Department of Health

(SGD.) CARLOS G. DOMINGUEZSecretary, Department of FinanceJune 16, 2021

(SGD.) ROLANDO ENRIQUE D. DOMINGODirector-General, Food and Drug Administration

(SGD.) CAESAR R. DULAYCommissioner, Bureau of Internal Revenue

(SGD.) REY LEONARDO B. GUERREROCommissioner, the Bureau of Customs

ANNEX A

Sworn Statement of Manufacturers, Distributors and Wholesalers of Drugs Prescribed for Cancer, Mental Illness, Tuberculosis and Kidney Disease