Pharmally Pharmaceutical Corp. may have incurred a P402.2-million tax deficiency by underdeclaring its input value added tax (VAT) for multi billion-peso worth of purchases, according to an independent analysis of the company’s financial records.
In a 12-page report, certified public accountants Jahleel-AN Burao and John Michael Lava noted five “high-risk” observations and one “medium-risk” observation related to the company’s contracts with the Procurement Service-Department of Budget and Management (PS-DBM).
A “high risk” observation means there may be “substantial losses” on the government’s part from undeclared or uncollected revenues or misuse of public funds.” It could also indicate serious violations of regulatory requirements and the company’s ability to fulfill contract obligations.
Pharmally won close to P10 billion in contracts from PS-DBM just a year into the pandemic by supplying medical supplies such as face masks, face shields and personal protective equipment.
Senators have flagged PS-DBM for allegedly favoring the company over local manufacturers even if its items were more expensive than other firms.
The accountants arrived at the figure of P402.2 million by recomputing the grossed-up amount of purchases and comparing it with the differences in the input VAT declared by the Pharmally in its financial statements. The VAT rate in the Philippines is pegged at 12%.
Pharmally stated that it paid P465.4 million input VAT for the goods it purchased, which amounted to P7.2 billion.
Burao and Lava, however, noted a difference of P3.3 billion in the inventory purchased by the company, which meant it had a tax deficiency of P401 million.
They also found a P3-million difference when the grossed up amount for capital goods was recomputed and compared with the P14 million declared by Pharmally in its financial statements. This meant a tax deficiency of P361,500.
While the accountants said it’s possible that Pharmally may have been exempted from paying import duties and taxes for imported medical goods, they said there’s no way of checking this from the available disclosures.
Burao and Lava recommend that Pharmally release its copy of its monthly and/or quarterly VAT returns for further scrutiny.
“Moreover, the Company must present a certification from the DTI that the equipment and supplies being imported are not locally available or of insufficient quality and preference for the imported items to be exempted from VAT and other taxes,” the accountants said.
Burao and Lava’s analysis of Pharmally’s financial statements contained additional research from experts belonging to civil society groups Citizen’s Budget Tracker and the Right to Know, Right Now! Coalition.