Let’s Talk Tax
By Alexander Querido, Jr.
Are we prepared for when we begin our “new normal”? Who else misses going out, joining social gatherings, playing outdoor sports, and attending Sunday mass? We spent the summer of 2020 in the comfort of our own homes, thanks to the coronavirus or the COVID-19 pandemic.
We have recently “graduated” from the Enhanced Community Quarantine (ECQ). The World Health Organization and the Department of Health (DoH) recommend lifting the ECQ gradually or in phases to avoid a resurgence or a second wave of COVID-19. In response, Metro Manila, Laguna, and Cebu City are under Modified Enhanced Community Quarantine. Other provinces, meanwhile, are under General Community Quarantine. It has not been easy, as essential services are still limited. Companies are restricted to a 50% physical workforce. Public transportation is not permitted in some areas. Our government has weighed the effects of the quarantine not only on the economy, but especially on the health & safety of Filipinos.
We may not immediately return to a semblance of normalcy without first finding the vaccine or cure for COVID-19. The pandemic has affected us in ways we could have never imagined. Health care providers and frontliners have been working long shifts for the past two months. The need for health care equipment or supplies is critical. The tools for prevention, protection, and testing are what we need right now. Some countries show success in containing COVID-19 by combining mass testing, social distancing, technology, and self-isolation. All of these must come together; otherwise, we are only “half-ready.” The government admits it has limited capacity to conduct mass testing. Sadly, the government does not have a robust program to carry out mass detection of the virus and has passed on the discretion to conduct tests to the private sector.
To address this issue, Section 4(o) of Republic Act No. 11469 — more popularly known as the “Bayanihan to Heal as One Act” — liberalizes the granting of incentives to manufacture or import critical or needed equipment or supplies to address COVID-19. Consequently, importing related equipment and supplies is now exempt from import duties, taxes, and other fees.
The Bureau of Internal Revenue issued Revenue Regulations (RR) No. 6-2020 which exempts from value-added tax (VAT), excise tax, and other fees the importation of personal protective equipment; laboratory equipment and reagents; medical equipment and devices; support and maintenance for laboratory and medical equipment, surgical equipment, and supplies; medical supplies, tools, and consumables; testing kits and such other supplies or equipment, as may be determined by the DoH and other relevant government agencies.
Further, importing materials needed to manufacture health equipment and supplies deemed critical or required to address the pandemic is also exempt from VAT, excise tax, and other fees. However, the importing manufacturer must be on the Master List of the Department Trade and Industry and other incentive granting bodies.
The related importation is also not subject to the issuance of an Authority to Release Imported Goods (ATRIG) under Revenue Memorandum Order No. 35-2002. An ATRIG is no longer needed to release of the goods from the Bureau of Customs (BoC). However, the BIR will conduct post-investigation or audit based on the BoC list of importers that imported without an ATRIG. Thus, it is crucial to keep and maintain documents supporting the imports.
Relative to RR No. 6-2020, the BoC issued Customs Administrative Order (CAO) No. 7-2020 to relax the regulatory clearance process.
CAO No. 7-2020 exempts importers of medical equipment and supplies from presenting a Certificate of Product Notification (CPN) or Certificate of Product Registration (CPR) issued by the Food and Drug Administration (FDA) before the BoC releases the goods. To be exempt, however, importers must provide a copy of their License to Operate (LTO) and proof of CPN or CPR application with the FDA. Importers of ventilators, respirators, and their respective accessories, on the other hands, only need to provide copies of their LTO.
Aside from establishments that provide medical devices, importers or companies that use face masks in performing work can directly import without an FDA certification.
Lastly, imported health products for donation, which are duly certified by the regulatory agency or accredited third party in the originating country, shall automatically be cleared. Certification is no longer needed for health products that are not subject to FDA clearance.
These regulations are in full force only during the three-month effectivity of RA No. 11469, unless extended or withdrawn by Congress. I hope that its effectivity will be extended, since we have a long way to go against the pandemic.
Tax and customs issuances will help hasten the manufacture, production, and distribution of medical supplies, tools, and equipment, especially the need for testing kits. The tax exemptions and incentives discussed above answer an essential question about our preparedness for the “new normal.”
Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.
Alexander Querido, Jr. is an associate of the Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.
