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The onslaught of COVID-19 has caused undeniable distress to various industries. Due to increasing efforts to quell the transmission of the virus, businesses that produced medicines and protective equipment, specifically face masks, were pressured to produce material that could accommodate the public need.

On 24 March 2020, Republic Act (RA) No. 11469, otherwise known as the Bayanihan to Heal as One Act, declared the existence of a national emergency arising from COVID-19. An authorization was granted under this law to liberalize incentives to enterprises engaged in the manufacturing or importation of critical or needed equipment or supplies, including healthcare equipment and supplies: Provided that importation of these equipment and supplies shall be exempt from import duties, taxes and other fees. Accordingly, the Bureau of Internal Revenue (BIR) issued Revenue Regulations (RR) No. 06-2020 and Revenue Memorandum Order (RMO) No. 10-2020 to address the implementation of this provision.

Following RA No. 11469 was RA No. 11494, otherwise known as the Bayanihan to Recover as One Act. In line with this, the BIR issued RR No. 28-2020 which implements the tax exemption provisions on the incentives for the manufacture or importation of certain equipment, supplies or goods under Section 4 (cc) and Section 18 of RA No. 11494. The importation from 25 June 2020 to 19 December 2020 of goods enumerated in the Regulations and identified as critical products, essential goods, equipment or supplies needed to contain and mitigate COVID-19, subject to the limitations and restrictions specified in the Regulations, shall be exempted from Value Added Tax (VAT), Excise Tax and other fees. For the purpose of qualifying for exemption from import duties, taxes and other fees and ensuring supply of personal protective equipment (PPE) at competitive prices, the taxpayer availing of the exemption must present a certification from the Department of Trade and Industry (DTI) that the equipment and supplies being imported are not locally available or of insufficient quality and preference. Importation of the covered goods were also exempted from the Authority to Release Imported Goods (ATRIG) requirement under RMO No. 35- 2002, as amended. The BIR may, however, conduct post investigation or audit on the importations released by the Bureau of Customs (BOC) without ATRIG pursuant to the Regulations.

This year, with the COVID-19 pandemic negatively affecting numerous industries and businesses, the second package of the Comprehensive Tax Reform Program (CTRP) or the Corporate Recovery and Tax Incentives for Enterprises (CREATE) was signed into law as RA No. 11534, with some vetoes, by the President. Under the CREATE Law, provisions were added to Section 109 (VAT Exempt Transactions). The additional exemption under Section 109 (BB) appears to be in direct response towards the increase in demand for importation and sale of COVID-19 medicines and personal protective equipment.

Moreover, under Section 109 (BB), the sale or importation of the following shall be exempt from VAT beginning 01 January 2021 until 31 December 2023:

i.Capital equipment, its spare parts and raw materials, necessary for the production of personal protective equipment components for COVID-19 prevention (e.g., coveralls, gown, surgical cap, surgical mask, N-95 mask, scrub suits, goggles and face shield, double or surgical gloves, dedicated shoes and shoe covers);

 ii.All drugs, vaccines and medical devices specifically prescribed and directly used for the treatment of COVID-19 (DOH shall issue a list of prescription drugs and medicines for this purpose within 60 days from effectivity of CREATE and every 3 months thereafter); and

iii.Drugs for the treatment of COVID-19 approved by the FDA for use in clinical trials, including raw materials directly necessary for the production of such drugs.

The RR No. 04-2021, as amended by RR No. 08-2021, provides that DTI shall certify that such equipment, spare parts or raw materials for importation are not locally available or insufficient in quantity, or not in accordance with the quality or specification required.

For the purpose of availing the exemption in items (i) and (iii), the sale or importation of equipment, spare parts and raw materials for the production of PPE components as well as the sale or importation of raw materials directly necessary for the production of drugs for the treatment of COVID-19, the supplier/s or importer shall submit the following:

1.    Certified true copy of “License to Operate”, issued to the manufacturer-buyer by the DOH-FDA authorizing the manufacture of the medical grade PPE components and drugs for the treatment of COVID-19; and

2.    “Sworn Declaration” from the manufacturer-buyer that the items shall be used for the manufacture of the PPE components and drugs for the treatment of COVID-19.

Incidentally, under Section 109 (AA), the sale of prescription drugs and medicines for diabetes, high cholesterol and hypertension beginning 01 January 2020, as well as cancer, mental illness, tuberculosis, and kidney diseases beginning 01 January 2021, has also been exempted from VAT.

Furthermore, up to this date, the BIR has issued Revenue Memorandum Circular (RMC) Nos. 81-2021, 99-2021, 103-2021, and 115-2021, which publishes the updated list of VAT-Exempt Products from the Food and Drug Administration and the Department of Health under Republic Act (RA) Nos. 10963, 11467 and 11534 and clarifies certain issues relative to the VAT Exemption of Certain Medicines and other Medical Devices for COVID-19.

With the aforementioned exemptions implemented, one of the objectives of the CREATE Law is to provide support to businesses in their recovery from unforeseen events such as a global pandemic and so strengthen the nation’s capability for similar circumstances in the future. It is still too early to determine how CREATE can help the Philippines recover both in terms of healthcare and economy, but the amendments were put in order to adapt to the changes the pandemic has created. It is in these challenging times that the matter on how the Philippines will cope with the fight against the pandemic is crucial. Whether the given timeframe for the exemptions mentioned (i.e., beginning 01 January 2021 until 31 December 2023) will be enough to respond from the continuing damages being sustained due to COVID-19 remains to be seen. May the CREATE law be a step towards the nation’s economic growth, relief for health workers and suppliers of COVID-19 prevention, and restoration from the onslaught of this pandemic.

Katherine Anne B. Robles is an Analyst from the Tax Group of KPMG R.G. Manabat & Co. (RGM&Co.), the Philippine member firm of KPMG International.

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 KPMG International or KPMG RGM&Co.

For questions and inquiries, feel free to send a message through social media or ph-fmmarkets@kpmg.com.