PHILIPPINE PHARMACEUTICAL INDUSTRY

The pharmaceutical industry is involved in developing, manufacturing, and

selling of drugs and non-drug products. Section 9 (f) of Republic Act (RA) No. 9711,
otherwise known as the Food and Drug Administration (FDA) Act of 2009, defines
drugs as articles intended for use in the diagnosis, cure, mitigation, treatment, or
prevention of disease in man and/or intended to affect the structure of the human body,
but which do not include devices or their component, parts, and accessories. On the
other hand, non-drug products include nutritionals (health food) and infant milk
preparations, baby care, cosmetics, diagnostic and other medical devices. (National Tax
Research Center, 2014)

The production of drugs in the country is carried out by diverse players such as
drug manufacturers and drug traders while local retailers partake in the distribution of
drugs. (National Tax Research Center, 2014)
Drug manufacturers are establishments engaged in any and all operations
involved in the production of health products including preparation, processing,
compounding, formulating, filling, packing, repacking, altering, ornamenting, finishing,
and labelling with the end in view of its storage, sale, or distribution. On the other hand,
drug traders are establishments which are registered owners of health products and
procure raw materials and packing components and provide the production
monographs, quality control standards and procedures, but subcontract the
manufacture of such products to licensed manufacturers. In addition, drug traders may
also engaged in the distribution and/or making of their products. (National Tax
Research Center, 2014)

TAXATION OF THE PHARMACEUTICAL INDUSTRY

The pharmaceutical industry, just like any ordinary business, is subject to the
following national taxes under RA 8424 (National Internal Revenue Code (NIRC), as
amended) and local taxes under RA 7160 (Local Government Code of 1991):
A. National Taxes
1. Regular Corporate Income Tax (RCIT) An income tax of
30% is imposed upon the taxable income derived during each
taxable year from all sources within and without the Philippines by
every corporation. If the pharmaceutical company is a subsidiary, it
is considered as a domestic corporation, thus, subject to income tax
on its worldwide income, i.e., income from all sources within and
without the Philippines. However, if it is a branch of a foreign
corporation, it is treated as a resident foreign corporation and as
such subject to income tax only on its Philippine-sourced income.

2. Minimum Corporate Income Tax (MCIT) An MCIT of 2% of

on gross income is imposed beginning on the fourth taxable year
immediately following the year in which a company commenced its
business operation. The MCIT is payable when it is greater than the
computed regular corporate income tax (RCIT). Any amount of
MCIT paid in excess of the RCIT shall be carried forward and
credited against the RCIT for the three immediately succeeding
years.
3. Dividends Tax Cash and/or property dividends paid by a
subsidiary to its foreign parent company subject to final
withholding tax (FWT) of 15% subject to a tax sparing provision.
If, however, the recipient of the dividend is a resident of a country
with whom the Philippines has a treaty, the applicable preferential
treaty rate will govern.
4. Branch Profit Remittance (BPRT) Profits remitted by a
branch to its head office are subject to a FWT of 15%. If, however,
the recipient of the profit is a resident of a country with whom the
Philippines has treaty, the applicable tax treaty provisions will
apply. On the other hand, if the activities of the company are
registered with PEZA, the branch is exempt from paying the BPRT.
5. Value-Added Tax (VAT) Any person who, in the course of
trade or business, sells, barters, exchanges, leases goods or
properties, or renders services if the annual gross sales/receipts
exceed Php 1,919,500.00 and any person who imports goods into
the Philippines shall be subject to 12% VAT.
6. Percentage Tax Any person whose gross sales/receipts are
exempt from payment of VAT and who is not VAT-registered shall
pay a tax equivalent to three percent (3%) of its gross quarterly
sales/receipts.
7. Documentary Stamp Tax (DST) In general, the DST is
imposed upon documents, instruments, loan agreements and
papers, and upon acceptances, assignments, sales, and transfers of
the obligation, right or property incident thereto, including leases of
lands or buildings, loan agreements, original issuances and
sales/transfers of shares, among others.
8. Taxes on Importation Import duties are imposed on goods,
chemicals, equipment, machineries, supplies and other articles
imported by the pharmaceutical company into the country in
accordance with the rates prescribe din the Tariff and Customs
Code of the Philippines. These are paid by the importer prior to the
release of such goods from customs.

B. Local Taxes

1. Local Business Tax (LBT) The rate of the LBT depends on the
local tax ordinance enacted by the city or municipality where the
pharmaceutical company is located. However, the rate/s should not
exceed the maximum rates prescribed under RA 7160 or the 1991
Local Government Code.
2. Real Property Tax (RPT) The pharmaceutical company is also
liable to the basic RPT imposed by the local government units
(LGUs) on real property owned by it such as land, building,
machinery and other improvements. The rate is fixed by the
concerned LGU. For pharmaceutical companies located in
provinces the basic RPT should not exceed 1% of the assessed value
of the real property. On the other hand, for pharmaceutical
companies situated in cities and municipalities within Metro
Manila area, the basic RPT should not exceed 2% of the assessed
value of the property. (National Tax Research Center, 2014)

INCENTIVES
A. Fiscal
a. 4 to 8 years Income Tax Holiday (ITH);
b. Special 5% tax rate on gross income after the lapse of the ITH (for IT
Park/Eco-zone locators);
c. Tax and duty exemption on imported capital equipment (for IT Park/Ecozone locators); Duty-free importation of capital equipment (for BOIregistered firms under E.O. 528);
d. Exemption form 12% input VAT on allowable local purchase of goods and
services, e.g., communication charges (for IT Park/Eco-zone locators);
e. Additional deduction for labor expenses.

B. Non-Fiscal
a. Unrestricted use of consigned equipment;
b. Exemption form wharfage dues and export tax, duty, impost and fees;
c. Employment of foreign nationals;
d. Special Investors Resident Visa.

BUSINESS PERMITS/LICENSES

License to Operate and Product Registration from Bureau of Food and Drugs
(BFAD);
Environmental Compliance Certificate from Environmental Management Bureau
(EMB);

Registration of Incorporation from the Securities and Exchange Commission

(SEC). (Industry Studies Department, Board of Investments, 2011)

References
Industry Studies Department, Board of Investments. (2011, May). Philippine Pharmaceutical Industry.
Retrieved from Philexport: http://www.philexport.ph/c/document_library/get_file?
uuid=7eae5dc8-cd96-4076-b7be-51ff536bfcce&groupId=127524
National Tax Research Center. (2014). Tax Contribution of the Philippine Tax Industry. Tax Research
Journal, 4-5, 9-11.