THE Bureau of Internal Revenue’s (BIR) expanded value-added tax (VAT) exemption on essential medicines will increase pharmaceutical demand in the Philippines, said a unit of credit rating and research firm Fitch Group.
“The government’s heightened focus on health care costs will likely support growth opportunities for local manufacturers of generic medicines,” BMI Country Risk & Industry Research said in a commentary on Tuesday.
“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 noted.
In April, the BIR added more to the list of VAT-exempt medicines to include prescriptions for chronic and life-threatening diseases, including cancer and diabetes.
VAT-exempt medicines for chronic conditions have now risen to 2,263 from the previous 2,242 issued in December 2025 to ease the financial burden of health care on Filipino households.
The measure comes at a time when out-of-pocket health care expenses remain elevated despite increased government spending on the sector, BMI said.
Government spending accounted for 44.6 percent of total health expenditures in 2025, while out-of-pocket (OOP) expenses remained high at 42.7 percent, highlighting the need for policies aimed at lowering health care costs and improving access to treatment.
Affordability-focused health care policies could create growth opportunities for local generic drug producers because essential medicines are predominantly supplied by manufacturers operating in the generics segment, BMI 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,” BMI noted.
Despite the positive outlook, however, BMI cautioned that several structural challenges could limit the extent to which the VAT exemptions translate into sustained industry growth.
“While VAT exemptions and industrial incentives should improve affordability and support local production, persistently high OOP spending suggests that broader access constraints will remain,” BMI said.
“In addition, the Philippines’ heavy reliance on imported pharmaceuticals and raw materials will continue to constrain supply chain resilience and slow the development of a fully localized manufacturing base.”
BMI cited limited financial resources, shortages of skilled workers, and weak domestic research and development capabilities as constraints that could hamper efforts to move beyond basic generic drug production toward higher-value pharmaceutical manufacturing.