QUEZON CITY -- "Only the medicines and medical devices for COVID with the corresponding dosage strength, and dosage form and route of administration included in the consolidated Iist of VAT-Exempt Products submitted by the FDA to the BIR shall be considered as exempt from VAT."

This is among the several clarifications made by the Bureau of Internal Revenue (BIR) when it issued Revenue Memorandum Circular No. 99-2021 last September 1, in response to concerns and issues it received from stakeholders relative to the VAT exemption of medicines for diabetes, high cholesterol, hypertension, cancer, mental illness, tuberculosis, kidney diseases, drugs and vaccines, and medical devices prescribed and directly used for COVID-19 treatment under the Tax Code, as amended by the TRAIN Law and the CREATE Act.

As stated in the Circular, the VAT exemption of said medicines and medical devices shall take effect on the date of publication by the Food and Drug Administration (FDA) of the consolidated list of VAT-Exempt Products, which was on June 17, 2021.

On the treatment of unutilized input VAT on the now VAT-exempt on-hand inventories, taxpayers are advised to follow and observe Item No. 2, Section 3 (Transitory Provisions) of RR No. 4-2021 which reads: "The taxpayer shall treat the resulting excess taxes paid due to the inclusion in the items exempt from VAT or adjustment in percentage tax rates, as the case may be, in the following manner: a. Unutilized VAT paid on local purchases and importation under subsections 4.109- 1(B)(aa)(ii) and 4.109-1(B)(bb) hereof from their specified effectivity under RA No. 11534 on January 1, 2021 until the effectivity of these Regulations may be carried-over to the succeeding taxable quarter/s or be charged as part of cost, pursuant to Section 110 of the Tax Code. Input VAT which are directly attributable to goods now classified as VAT-exempt may be allowed as part of cost. For input VAT that cannot be attributed to goods now classified as VAT-exempt, only a ratable portion thereof shall he charged to cost."

No tax refund will be allowed for the supposed erroneously paid VAT on local purchases and importation. A tax refund may be allowed only in cases where there is a change of status from VAT to Non-VAT registration.

The Bureau further clarified that there is already a utilization of input tax when the corresponding VAT on the imported drugs or medicines has been claimed as input VAT credit in the monthly and quarterly VAT returns and consequently allocated to either VATable, zero-rated or exempt sales. Hence, claiming it again under Section 204 of the Tax Code is no longer permissible as this is already tantamount to claiming the alleged erroneously paid VAT twice. The input tax attributable to VAT-exempt sales shall not be allowed as credit against output VAT but should be treated as part of cost or expense.

For more detailed clarifications, read the full text of RMC No. 99-2021 at www.bir.gov.ph.  (BIR)

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