‘Expanded VAT exemptions to drive demand’

MANILA, Philippines — Pharmaceutical companies are likely to see higher demand for essential medicines due to the expanded value-added tax (VAT) exemptions, according to research and analysis firm BMI.

The Fitch Solutions unit said in a report that  government moves to reduce the cost of essential medicines, including VAT exemptions, are expected to benefit drugmakers in terms of increased demand.

“The government’s heightened focus on healthcare costs will likely support growth opportunities for local manufacturers of generic medicines,” BMI said.

In April, the Bureau of Internal Revenue expanded the number of VAT-exempt medicines for chronic conditions to 2,263 from 2,242 in December last year.

The measure forms part of the government’s ongoing efforts to reduce the cost of essential medicines.

BMI said the move is expected to lower prices and potentially increase drugmakers’ volume of sales.

As essential medicines are predominantly supplied by generic drugmakers, BMI said that policies making pharmaceutical products more affordable could also opening opportunities in other critical therapeutic areas.

In addition, it said that the government’s commitment to building stronger national medicine reserves may create a more stable source of demand for locally produced essential medicines.

This is expected to encourage manufacturers to make long-term investments.

However, BMI cited downside risks that may limit the growth driven by policy measures.

While VAT exemptions and industrial incentives should improve affordability and support local production, it said that high out-of-pocket spending  suggests that access will continue to be a challenge.

In addition, the country’s heavy reliance on imported pharmaceuticals and raw materials is expected to continue to affect supply chain resilience and slow the development of a fully localized manufacturing base.

Limited financial resources, lack of skilled labor and weak domestic research and development capacity are also likely to restrict the pharmaceutical sector’s ability to move into higher-value 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,” BMI said.