Drug VAT exemptions seen boosting pharma growth

THE expansion of value-added tax (VAT) exemptions on medicine is expected to improve drug affordability and support the growth of the pharmaceutical industry, according to BMI, a unit of Fitch Solutions.

The Bureau of Internal Revenue’s recently-expanded list of VAT-exempt medicines for serious and chronic illnesses brought the total number of exempt products to 2,263.

“As essential medicines are predominantly supplied by generic drugmakers, policies aimed at improving affordability could particularly benefit domestic producers in the generics medicine segment, while also opening opportunities in other critical therapeutic areas,” it said on Monday.

“The measure forms part of the government’s ongoing efforts to reduce the cost of essential medicines, particularly considering the financial burden on households,” it said.

BMI noted that out-of-pocket payments accounted for 42.7% of total health spending in 2025, underscoring the need for measures that lower medicine costs.

“The VAT reduction will decrease the tax burden on these medicines, which will result in lower prices and potentially higher volumes of sales for drugmakers,” it said.

BMI also said efforts to strengthen national medicine reserves could provide a more stable source of demand for locally-manufactured drugs and encourage long-term investment.

It said that the government’s push to build pharmaceutical parks will help attract investors, as will proposals to reduce the corporate income tax rate to 20% from 25% via incentives administered through the Philippine Economic Zone Authority.

However, BMI said structural challenges could limit the industry’s expansion.

The Philippines remains heavily dependent on imported medicine and pharmaceutical ingredients, while high out-of-pocket spending suggests broader healthcare access issues persist.

It also cited limited financing, shortages of skilled workers and weak research and development capabilities as constraints on the industry’s ability to move beyond basic generic drug production.

“As a result, while the policy direction is supportive, structural and execution risks will likely temper the pace of expansion in the Philippines’ pharmaceutical industry,” it added. — Justine Irish D. Tabile