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March 4, zolg

REvENUE MEM{}RANDUtrrr cIRCULAR No. b4 ' 2 0 /q

SUBJE,CT : Ctrarification on the Treatnlent and Reporting Requirements of Input Tax

as of December 31, 2018 R.elative to Val*e-Added Tax (VAT) trxempt
Medicines Pursuant to Section 109 (1) (AA) of the National Internal
Revenue Code of 1997, as Amended by Republic Act (RA) No. 10963 or the
Tax Reform for Acceleration and Inclusion (TRAtrI\) Larv

TO : All Internal Revenue Officials, Employees and Others Concerned

This Circular is issued to clarify the treatment and reporting requirements of input tax
pertaining to drugs and medicines prescribed for diabetes, high-cholesterol and hyperlension
purchased on or before December 31,2018 by manufacturers, distributors, wholesalers and
retailers which remained unsold as of December 31, 201 8.

Pursuant to Section 34 of RA No. 10963 or the TRAIN Law, the sale of drugs and
medicines prescribed for diabetes, high-cholesterol and hypertension shall be exempt frorn
VAT beginning January 1,2019. Considering that input tax attributable to VAT-exempt sale
cannot be passed on to the buyer, the fbllowing shallbe strictly observed by all concerned:

1 . Inventory list as of December 31,2018 of drugs and medicines which became VAT-
exempt beginning January 1,2019 shall be required from all manufacturers,
wholesalers, distributors and retailers regardless of whether or not there is an
existing excess input tax.

2. The inventory list shall include all drugs and medicines on hand, imported and
locally manufactured, using the format prescribed in ANNEX "A".

3. The inventory list shall be fited with the Large Taxpayer Service/Revenue District
Office where the taxpayer is registered on or before April25,2019 as an attachment
to the Quafterly VAT Declaration Form (BIR Form 2550Q) for the first quarter of
2019.

4. As the sale of VA'I-exempt drugs and medicines at'e made, the input tax
corresponding to the sale shall be closed to cost or expense.

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Rev en tte Mem or andurn C ircu lar N o.
Page 2 of 3

Illustration 1:

On December 2018, the taxpayer purchased medicines prescribed for Diabetes,

High-Cholesteroland Hypertension in the amount of P300,000.00 which rvere sold
orr January 2019 with 30% rnark-up. r\s of Decernber 31, 2018, the taxpayer's
excess input tax credit is P I 50,000.00 and the summary of the taxpayer's inventory
list shows the following:

Amount Input Tax

Lnported Medicines
Medicines Prescribed lbr Diabetes,
FIigh-Choleste rol & llypertens ion P 300,000.00 36,000.00
Other hnported Med icines 700,000.00 84,000.00
Looally Manufhctured M ed icines
Medicines Plescribed for Diabetes,
High-Cholesterol & IJyperlens ion
Other I-ocally Man ufactured Medicines 250,000.00 30,000.00
TOTAL P 1,250,000.00 I 50,000.00

The accounting entries to record the transactions will be:

To record the purchase made in Decernber 2018:

Inventory 300,000.00
Input Tax 3 6,000.00
Cash or Accounts Payable 336,000.00

To record the sale made in January 2019:

Cash or Account Receivable 390,000.00

Sales / Revenue 390,000.00

To record cost of sale / deduction from inventorv:

Cost of Sale 300,000.00

Inventory 300,000.00

To close the corresponding input tax allocable to VAT-exernpt sale:

Cost of Sale / Expense 36,000.00

Input Tax 36,000.00

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Reyentre Memorandtun Circular No.
Page 3 of 3

5. When filing BIR Form 2550M12550Q, the input tax coresponding to the sale shall
be deducted from the taxpayer's allowable input tax as shor,vn below:

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Ail concerned revenue officials and employees are hereby enjoined to give this circular
as wide a pubiicity as possible.

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CAESAR R" DULAY
Commissioner of Internal Revenue
' 0 24214
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