Can tax breaks make medicines more affordable?
The country remains heavily dependent on imported drugs.
The Philippines is expanding tax incentives to lower medicine prices and encourage local drug production, but industry data suggest the measures may have limited impact whilst patients continue to pay much of their healthcare costs out of pocket.
“Tax breaks lower list prices; they do not change who pays at the counter,” BMI, a Fitch Solutions company, said in a report published in June.
The Bureau of Internal Revenue expanded its value-added tax (VAT)-exempt medicine list to 2,263 products from 2,242 in December.
BMI said the move should support demand for locally made medicines, particularly generic drugs that account for most products on the exemption list.
The report also pointed to incentives for pharmaceutical manufacturers, including Philippine Economic Zone Authority-administered industrial parks that offer a reduced 20% corporate income tax rate, alongside government efforts to boost national medicine reserves.
However, BMI said out-of-pocket payments accounted for 42.7% of total health spending in 2025, limiting the impact of lower medicine prices on household healthcare costs.
The report added that the country remains heavily dependent on imported medicines and pharmaceutical ingredients, leaving the industry exposed to supply chain disruptions.
Limited financing, a shortage of skilled workers, and weak research and development capabilities also continue to constrain the industry's ability to expand higher-value manufacturing.
IMARC Group estimated the Philippine pharmaceutical market at $3.36b in 2025 and expects it to reach $3.91b by 2034.
The research firm said implementation of the Universal Health Care Act and rising medical inflation would support market growth, whilst manufacturing hubs such as Victoria Industrial Park in Tarlac province in northern Philippines could help reduce dependence on imported medicines.
Questions to ponder
- Can tax incentives significantly reduce medicine costs if patients continue to pay most healthcare expenses themselves?
- What policies would most effectively reduce the Philippines' reliance on imported medicines?
- Should the government prioritize expanding health insurance coverage or providing more tax incentives for medicines?
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EXPERT OPINION
From the perspective of APHM, our ultimate goal is to ensure that patients continue to have access to safe, effective, and affordable medication. At present, private hospitals offer patients a wide range of medicines, including generic and brand-name products, so that treatment decisions can be made based on the patients' clinical needs and also affordability. APHM is generally supportive of measures that help reduce production costs and strengthen the supply chain, especially locally, as these efforts can contribute to ensuring that medicines remain accessible and affordable for patients.
On the point of whether tax incentives would help make medicines more affordable, it depends on whether these taxes are targeted to address the challenges the manufacturers face. In Malaysia, for example, we do have existing tax incentives. The Pioneer Status offers qualifying pharmaceutical manufacturing and biotechnology projects a 70% to 100% exemption on statutory income for a period of five to ten years, encouraging investment in domestic production. Similarly, the Investment Tax Allowance (ITA) supports capital investment in pharmaceutical manufacturing, while incentives for high-value activities under the National Investment Aspirations (NIA) framework are intended to improve domestic production capabilities.
How I see it is, tax incentives are only one important part of the equation. For sustainable medicine affordability, it would require a long-term approach and most importantly, it must address supply chain challenges. A key priority for Malaysia if the goal is to expand local medicine manufacturing, would be to increase investment in the local production of APIs as at present, Malaysia is heavily reliant on imports for APIs. In this context, tax incentives could play an important role by encouraging investment in API manufacturing and improve Malaysia's supply chain resilience.
Tax incentives can help reduce the cost of bringing medicines to market, but they address only one part of the affordability challenge. VAT exemptions and reduced manufacturing tax rates lower production costs, yet these savings do not always translate into lower prices for patients because costs accumulate across distribution, wholesale, retail, and healthcare delivery. Patients still pay a large share of healthcare expenses out of pocket, particularly for consultations and hospitalization, so lower medicine prices alone may have a limited effect on total household healthcare costs.
The incentives are likely to have a greater impact on the supply side by making local generic manufacturing more commercially viable. However, reducing import dependence ultimately requires stronger industrial capacity, including skilled workers, financing, manufacturing infrastructure, and R&D capabilities. Tax incentives are most effective when combined with targeted investment that enables domestic manufacturers to operate on a scale and replace imports over time.
Tax incentives can help reduce medicine costs by encouraging local pharmaceutical manufacturing and attracting investment, but on their own they will have limited impact on what patients actually pay. The Philippines should also strengthen local production of essential medicines and pharmaceutical ingredients, streamline regulatory processes, and improve supply chain resilience to reduce dependence on imports. At the same time, expanding access to medicine benefits through programs like PhilHealth GAMOT and improving procurement of quality generic medicines will likely have a more direct and sustainable impact on affordability than tax incentives alone.
From our experience in outpatient care, patients are highly sensitive to medicine costs, and even modest price reductions can improve treatment adherence. However, lasting affordability requires policies that address the entire value chain from manufacturing to patient access.
Medicine affordability remains an important issue across many markets, as the cost of treatment can be a barrier to accessing care. From an employer perspective, the focus is less on any individual mechanism used to improve affordability and more on the outcome it delivers. The most important question is whether people can access timely, affordable and effective care. Improving affordability is only one part of the equation; sustainable impact comes from combining access, quality and better health outcomes to support a healthier and more productive workforce.