RMC No. 99-2021 — Clarifies issues relative to the Value-Added Tax (VAT) Exemption of certain medicines and other medicinal devices for COVID-19 under Sections 109(1)(AA) and 109(1)(BB)(ii) of the National Internal Revenue Code of 1997 (Tax Code), as amended by Republic Act (RA) Nos. 10963 (TRAIN Law), 11467 and 11534 (CREATE Act) Digest | Full Text

SUBJECT .U OF INTEHNAU Ruvt TO REPUBLIC OF THE PHILIPPINES DEPARTMENT OF FINANCE BURFAU OF INTERNAL REVENUE Quezon Clity August 16,2027 REVENUE MEMORANDUM CTRCULAR l\o. !!:j!lu Clarifying Issues Relative to the Value-Added Tax (VAT) Exemptiort of Certain Medicines and other Meclical Devices for COVID-19 UnCer Sections 109([XAA) and 109(l XBBXri) r,f thc lt{ational Interrial Ftevenue Code of 1997 (Tax Code), as Amended by tLepuhlic Act r'l;i-{ ) Nos. 10963 (TRAIN Law), \11(17 ancl 11534 (CILEATE Actt) Atrl Internal Revenue Officers antl Others Concerned The Bureau has received ser,'eral concerns and issues fiom both internal and external stakeholders, in relation to the recent issuance of Revenue Memcrandum Circular (F.l'4C) Nc,. 8l- 2A21, circularizing the consolidated list of VAT-Exempt Products (i..e., medicines 1c,r hypertension, cancer, mental illness, tuberculosis, kidney cliseases, diabetes" and high choiesieicl. and medicines ancl rnedical devices fbr COVID- l9) published by the Focd and Di'ug Administration (FDA) on l7 June 2021 pursuaut to Republic Act (R,,\) Nlo. 11534. or tht-' CREATE Act. 'fhere \vere also issues raised pertaining to claims; fbr rcfurid uncler Rele;rui: Memorandum Order (RMO) No. 36-2020. in relation to Revenue Regulations (RR) l{o. 4-202:. To address thesc issues and concerns, this RMC, in question and ansrver fonnat, is nerebi, issued. Ql: When is the effectivity for the VAT exemption of the productri incfrruded !n the consolitlated list of VAT-Exempt Products submitted by the Food anci D nirg,s Administration (FDA) to the IIIR, as circularized in RIVIC l{o.81-2021? A1: Itern No. 2 of thc General Guidelines ol' Joint Administrative Ordi:r ]io. 2-,i018. or tht: Implernenting Guidelines on the Value-Addcd Tax (VAT) Exer:nption ol the S;llc of Drug:; Prescribed for f)iabetes, High Cholesterol and [{ypertension LJnder Republic Act (RA) tio. 8424, as Amended by RA No. 10963, provides that, "lhe.s'ale ol drug,s nol includetl in lh,: 'List q/ VAT-exempt diabetes, high-choleslerol und hltperten,s'ion tlrugs" pul,li,shetl b.t, the FDA s'hall not be cxernpt .fiom I/AT'. Moreover" Section 2 of Revenue Regulations (RR) No. 4-?.021 . ai-nending Section 4.109- l o1'RR No. l6-2tt05, aS amended, provides that, "lhe c,;ernplion.lro,,tt I,'Ai,7'uncler ihi,s subseclion shqll only apply to lhe,;ale or imprtrtution by'the munufuctu,rers', tli,ylribulo,rs, whole,salers antl .rctailer o.f'clrugs cthd medicine.; inclutJed in the 'liyl tt,f'aJ)pt'ot,ecl clri.tg',r and meclicines' is'stted h), the Departmenl o.f Health /br thi.r pur'1)ose'; . tsased thereon. it is clear that the VAl- exemption o1'nredicin,:s frlr iiiibetcs, high cholesterol, hypertension, cancer, mental illness, tuberculosis. kidney cliseasc:,;, drugl; lnd vaccines prescribed and directly used fbr COVID-I9 treatmcnt, a.nrJ medical device's I

,, directly used for COVID- () ircatrncnt shall take effect on the date _qf_Jrybl!cation b]' thr: 1 FDA of the consolidated Iist ol'VA'l'-[:xempt Products, w'hich \,vas on JUry 1L 2021. Q2: Is the VAT exemption exclusive only to the items enumerated in said consolidatecil lisrt of VAT-Exempt Products, with specific dosage strength and dosage form and route o,f administration, submitted by the FDA to the BIII? A2: Yes. The law and its implementing revenue regulations clearly provide that "/he exempti,otl .fro* VAT under this sub,section shall only apply to the ,valc or imporlulion by lhe marutfaclurer,s, di,ylrihutors, v,hole,salers and relailer o/ clrug,s und ruedicines includec{ in the 'li,sl o.f'opproved drugs ancl medicines'issuad by the DOH frtr lhis purpo.tc. " Hence, only the medicines and medical devices for COVID with the corresponr.ling dosagr: strength. and dosage form and route of adnrinistration included in the ccnsolidated lisl of VAT-Exempt Products submitted by the FDA to the BIR shall be considered as exempt from VAT. Q3: In relation to tL.A. Nos. 10963 and 11467 , several lists providecl b-v FDA lvere circulartzed last year to provide the drugs and medicines that are exempt frorm \/AT under Section 109(1XAA) of the Tax Code, as amencled. Are the said lists still in effect? A3: No. The consolidated list of VAT-Exempt Products, which includes the previous;ly- circularized lists through RMC Nos. 4-2019,62-2020, and 101-2020. provided by' FDA to BIR and circularized through RMC No. 81-2021 is now the controliing list insofar as tht: VATexemption of itenrs under Sections 109(lXAA) and 109(lXBBXri) ol'the Tax Code, as amended, is concerned. The consolidated list was intended to updatr: the previous lists for ease of reference and for use by all stakeholders concerned. Therefore, this consolidated list should only be the list that will be used as a reference in cher:king w'hether or not a certain medicine or medical device is exempt from VAT or not. ' Q4: How to treat the unutilized input VAT, if any, on the now VAT-exermpt on-hand inventories? A4: The treatment of unutilized input VAT on the now VA'f-exempt on-hand inventories is found in Item No. 2, Section 3 (Transitory Provisions) of RR No. 4-2A21. whicnr reads: "2. T'he taxpayer shall lreat the restllting exce,ss taxes paid due to the inclusion in lhe ilerns exempt.fiorn VAT or ucl.justment in percenlage lax rate,t, Gs lhc c'u,ve muy hc, in lhe .follou,ing manner: rcl t a. Llnutilizecl VAT paid on local purchases and imporlation under sttbsections 4.1{,tt)- ;i-r2j ---lr"( ai l(B)(au)(ii) md 4.109-1(D&il hered'from their specilieC e/factivity under RA \trt. Lffi DiI 11534 on.lanuary l, 2021 unlil the effeclivily of tlrcse Regulutions mu); be currieat- over to the succeeding taxable quarter/s or be chargect a:; part of'cosl, ptrsuc'ttl ltt Section I l0 of the Tax Cade. ffi-HII Ipput VAT v,hich are clirectly attrihutable to goods n()tt) c:las'.;ifi,etl a:; VAT-exeru7sl l--HHl

muy he ullov,ed as parl a,f'cosl. For inpirl VAT' lhu/ cunnol be attributed to good,s t1ot4, class'ified crs VAT-cxempl, onl;r, u rulahlc pot"tion lhered'shall be' churgecl to cosl." Taxpayers concerned are. thus, advised to fbllow and obscrve rhc illrrstrations provictecl Ibr in said Item on the treatment of this unutilized inllr-rt VAT'. Q5: Will a tax refund be allorved for the supposetl er"n'on)ousfly pai,rl VAT on l,CIr:al purchases and irnportation (from their specified eff'ec{ivify under R..A. I\o. 11534 on January 1,2021 until the date of the FDA's publication of the consolidated list of VAT-Exempt Products on June 17r202l) simce this u,as allowed under R.A" No. 10963 and R.A. No. 11467 per Section 3 (Transiton-v Provisioras) of the irnpl,ementing RR tlo. 18-2020? 45: No. As mentioned in the preceding Q&A, the unutilized VAT pairJ cn local 1;trrchases and importation of items under subsections 4.109- 1 (BXaa)(ii) and 4.109- 1 (BXbb) of RR No. 1.- 2021, fiom their specified efl'eclivity under the law (RA No. 1 I 534) on JanuarJr 1. 2(12 I until the eflbctivity of the said RR on those itenrs, which, as explained in Q18{.A1 aboye, should be on the date when the FDA publishr:d the ccnsolidated list of VAT-Exernpt Products on June 17, 2021, may be carried-over to the succeeding taxable quarter/s or be charged as paft ol'cost. pursuant to Section I l0 of the Tr-.x Code of'1997, as amenrjecl. r\ tax refund rnay be allowed only' itr cases where there is a change o[ status fiom VA1 t6 Non-VAT registration. under Sec. 112(B) of the'tax Code ol !997,as arnendecl. RR No. 4-2021 is not to be confr"rsed with RR No. 18-202A as the latter \^/as anchorerl under R.A. Nos' 10963 and 11467, while the tbrmer was lssued to implement the provisions of R.A. No. I 1534 or rhe CREATII Act. Q6: In relation to RR I\o. 18-2020, please further clarify the meaning of the phr:,ise, "provided that the inpwt tax on the importetl items huve not been repcrtecl us input ta-u credit in the monthly ond/or quarterly VAT relurns", found in Section 3 (Transitorrr Provisions) thereof, in order to refund rhe erroneously paiid VAT orn inlporfatiom 6f VAT-exernpt drugs? A6: The above-mentic'ned phrase w'as included therein tci ensure that thc importecl items lrave not been reported and claimed as input tax creciit in the monthly and quarlerly'VAT r.eturns pursuant to Section 110 of the T'ax Code of lc)97, as arlended, tbr prurposes of cornpgtigg the VA'f payable' However, thi: taxpayer may be allciwed to rerflectihe-said irrrpofiation as part of the "Purchases not Qualified fbr Input"l"ax" row of tlie mrlnthly and quarlerly V41 returns to properly' show the amount of purchases fbr a certain period. Q7: In relation to the prececling Q&4, if the corresponding VA?' orr the impgrtetl dnug;s or medicines has been claimed as input tax cretlit in the rnonthh, and quLarterly VAT returns, can it still be altrowed lior refund under Section 2$4tcl of fhe Tax Code? E Ur'.:' ffiEIllERNALREVEITUE 01 emx [( R CORD S MGT. DIVISI

a' A7: No. RR No. 18-2020 is clear that when said VA I is claimcd as input V1r'l' credit ;rnrl consequently allocated to either VATable, zero-rated or exempt sales, this onl.r means that there was already a utilization of input tax. Flence, claiming it again under Section 204 is no longer permissible as this is already tantamount to clairring the alleged erroneously perid VAT twice. Pursuant to Sec. ,1.110-4 of RR No. l6-2005, as amended, input tax attr'ibutable to Vl\T- exempt sales shall not be allowed as credit against output V,4T but should tre treatr:ci as part ofcost or expense. All internal revenue officers, employees and others concerned are enjoined to give l,hi;s Circular a wide publicity as possible. J/P/=ulo.^'-+a/ CAIiSAR IT. DULAY K-1 .' 045 Commi,ss ioner of' Int erna I Revenue 075