Rules governing 20% discount for the elderly out this month

AN ESTIMATED 4.6 million senior citizens are expected to enjoy a full 20% discount tax-free for goods and services, particularly medicines as the Implementing Rules and Regulations (IRR) of the Expanded Senior Citizens Act of 2010 or Republic Act 9994 will be out this month.

The IRR will be drafted by the Department of Health (DOH), the Department on Social Welfare and Development (DSWD) and the Bureau of Internal Revenue (BIR) in consultation with drug-stores and pharmacies.

It is expected to obligate manufacturers and distributors to share the burden of implementing the 20% discount for senior citizens.

However, drugstores are complaining that they are already losing profit from the previous 20% discount inclusive expanded value-added tax (e-VAT). Under the original law, Republic Act 7432, senior citizens can only avail of 8% of the original 20% discount because they are also obliged to pay VAT with their purchases.

With the new provision of RA 9994, the 20% discount will be free of tax but poses a risk to the survival of the drugstore industry, particularly small and medium-sized drugstores.

Celia Carlos, chairperson of the National Affairs Committee of the Drugstores Association of the Philippines (DAP), said that without just compensation, the legislation would provide an uneven playing field for low-profit drugstores.

“That is why some drugstores are either forced to violate the law and give only partial discounts to senior citizens or to recommend them to either shift to generic drugs with a bigger margin for profit or sometimes even to go to big drugstores to purchase their medicines,” she said during a press conference in Quezon City yesterday.

This poses a big loss for drugstores nationwide, particularly because sales for maintenance drugs for the elderly can comprise up to 50% of total sales. Ms. Carlos foresees the death of small law-abiding drugstores due to bankruptcy if a permanent solution remains evasive.

This is problematic because in small towns and barrios, there are few big drugstores that can afford to implement the 20% discount.

Because of this, the drafting body of the IRR will incorporate burden sharing of the 20% VAT-free discount not only with drugstores but with distributors and manufacturers of medicines.

According to Atty. Germaine Leonin, Planning Officer of the National Coordinating Monitoring Board of the DSWD which is drafting the IRR, they are looking to oblige manufacturers and distributors to absorb 70% of the tax-free discount and the remaining 30% will be shouldered by drugstores.

The BIR has yet to decide if the 20% VAT-free discount will be zero-rated, which means the discounts can be deducted from the amount of taxes paid or tax-exempted, which means drugstores would have to shoulder the 12% tax.

Atty. Edcel Manuel, legal counsel of the Mercury Drugstore Corporation said that they are pushing for zero-rated discounts to earn minimum profit for their sales.

“We do not object to the plight of the senior citizens. We think it is very noble to give back to them their contributions to the society but the problem here is just compensation,” he said.

RA 9994, which was signed by President Gloria Macapagal-Arroyo last Feb. 16, also exempts senior citizens from paying VAT on other commodities and services. — Mary Grace M. Gato, Businessworld