BIR grants tax breaks for US-funded anti-drug projects

The Bureau of Internal Revenue (BIR) has granted tax breaks to qualified transactions, contractors and personnel involved in US-funded anti-drug and law enforcement programs under a bilateral agreement with the Philippines.

Under Revenue Memorandum Circular No. 73-2026, the BIR said transactions covered by the Letter of Agreement (LOA) on Narcotics Control and Law Enforcement are exempt from value-added tax (VAT) and income tax.

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Signed in 2011, the LOA aims to strengthen the Philippines’ campaign against illegal drug trafficking and smuggling. The Senate later ratified the agreement in September 2025.

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Specifically, VAT exemptions cover local sales of goods and services by VAT-registered sellers to the US government through recognized implementing partners, services by nonresident providers, and imports for covered programs, the BIR said.

However, non-VAT registered sellers remain subject to the 3-percent percentage tax under the National Internal Revenue Code.

In addition, the order exempts nonresident foreign contractors, consulting firms and their personnel from Philippine income tax on earnings from services done under the agreement.

Likewise, the same exemption applies to nonresident US government personnel assigned to official duties in the Philippines.

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Meanwhile, their accompanying family members may also qualify for VAT exemption on personal purchases after getting a VAT Certification from the BIR’s International Tax Affairs Division (ITAD).

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To qualify, implementing partners must secure US government endorsement through diplomatic channels, prove participation in a covered program, and obtain a VAT Certification from the ITAD.

Still, the BIR said beneficiaries remain subject to post-audit and verification to ensure compliance. /pai INQ

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