More VAT-free medicines benefit consumers, drugmakers–BMI

MANILA, Philippines – Both drug manufacturers and Filipino consumers will benefit from the value-added on medicines will lower prices and boost demand, BMI said.

In April, the Bureau of Internal Revenue issued a memorandum expanding the list of medicines exempt from the 12-percent VAT to 2,263 from 2,242 previously. These include treatments for serious and chronic illnesses, including cancer and diabetes.

READ: House bill seeks VAT exemption for all essential medicines

In a recent report, BMI, a unit of Fitch Solutions, noted that the move forms part of the government’s broader effort to reduce healthcare costs, particularly as Filipino households continue to shoulder a large portion of medical expenses.

Government spending accounted for 44.6 percent of total health expenditure in 2025, while out-of-pocket spending remained high at 42.7 percent.

“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,” BMI said.

Under the updated exemption list, VAT-free cancer medicines increased to 702 from 675. Medicines for diabetes rose to 327 from 323, while VAT-exempt tuberculosis treatments increased to 76 from 75.

BMI said local manufacturers of generic medicines stand to benefit the most from the expanded list.

“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.

“In addition, the government’s commitment to building stronger national medicine reserves may create a more stable source of demand for locally produced essential medicines, giving manufacturers greater confidence in making long-term investment decisions,” it added.

This expanded list also comes as the government seeks to strengthen domestic pharmaceutical manufacturing.

The government aims to boost local pharmaceutical manufacturing capacity by 40% by 2028 through incentives, technology transfers, and streamlined approvals.

However, BMI cautioned that several structural challenges could temper the industry’s growth.

Despite supportive policies, the Philippines remains reliant on imported medicines and raw materials, while the sector faces funding, talent, and R&D constraints.

“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,” BMI said.

A bill has been filed in the House of Representatives that seeks to exempt all essential medicines from VAT.

Filed by ACT Teachers Rep. Antonio Tinio, Gabriela Women’s Party Rep. Sarah Jane Elago and Kabataan Party-list Rep. Renee Co, the measure seeks to “lessen the burden” on Filipinos while supporting the government’s obligation to protect and promote the right to health. /pai INQ