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BIR defers 12% VAT on exporters’ local purchases

  • The Department of Finance is reviewing Bureau of Internal Revenue Revenue Regulations No. 9-2021, which imposes a 12% VAT on previously zero-rated indirect exports
  • Finance Secretary Carlos Dominguez III on July 21 said the review—which will be done within the month—“technically” defers implementation of RR 9-2021
  • Albay 2nd district representative and Lower House Committee on Ways and Means chair Jose Ma. Clemente Salceda also announced on July 21 that DOF and BIR have agreed to suspend implementation of RR 9-2021
  • Salceda said the regulation is suspended pending “corrective legislation”

The Department of Finance (DOF) is reviewing Bureau of Internal Revenue (BIR) Revenue Regulations (RR) No. 9-2021, which imposes a 12% value-added tax on previously zero-rated indirect exports.

Finance Secretary Carlos Dominguez III, during a virtual forum hosted by the Financial Executives Institute of the Philippines on July 21, said the review will be done within the month.

Asked if the review of RR 9-2021 meant its implementation is deferred, Dominguez said this was “technically correct.”

He explained: “Regulations were issued at the end of June. VAT returns are quarterly. So if we start implementing CREATE [Corporate Recovery and Tax Incentives for Enterprises Act] this quarter July, it’s technically deferred to this quarter and returns are due 25th day after the end of the third quarter.”

On the same day, Albay 2nd district representative and Lower House Committee on Ways and Means chair Jose Ma. Clemente Salceda announced that DOF and BIR have agreed to suspend implementation of RR 9-2021, which took effect last June 27.

No memo on the suspension has so far been issued.

Following the Committee on Ways and Means briefing with concerned government agencies and stakeholders on July 21, Salceda in a statement said the DOF and BIR held talks with him over the weekend, and a hearing was supposed to be conducted on July 19 but was deferred to July 21 “out of deference to the Secretary, whose decision was to suspend the regulation first pending corrective legislation.”

Salceda said DOF will implement the provision of the CREATE Act that allows exporters to enjoy zero VAT on local purchases of goods and services that are directly and exclusively used in registered project or activity.

“CREATE hopes to ease the operations of exporters, enhance the country’s competitiveness, and encourage sourcing of materials from local suppliers. That’s the spirit of the legislation. That’s why it insists on the zero-rating for local inputs, on top of enhanced deductions for them,” Salceda said.

RR 9-2021, issued on June 11, imposes a 12% VAT on transactions covered under Section 106 (A)(2)(a) subparagraphs (3), (4), and (5), and Section 108(B) subparagraphs (1) and (5) of the National Internal Revenue Code (Tax Code) of 1997, as amended by Republic Act (RA) No. 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) law.

The implementation of 12% VAT on certain transactions under RR No. 9-2021 follows the satisfaction of conditions set forth in the TRAIN law: establishing and implementing an enhanced VAT refund system that grants refunds of creditable input tax within 90 days from the filing of the VAT refund application with BIR; and all pending VAT refund claims as of December 31, 2017 should be fully paid in cash by December 31, 2019.

Exporters, stakeholders’ groups and the Philippine Economic Zone Authority (PEZA) earlier called on government to repeal RR 9-2021.

PEZA in a memo dated July 6 said its official position is that RR 9-2021 contradicts the provisions of the CREATE Law, which specifically provides for the VAT exemption of registered enterprises under Section 294.

Moreover, PEZA said RR 9-2021 rejects the separate customs territory principle provided under RA 7196 or the PEZA Law, and the cross-border doctrine that was fully recognized and established by the Supreme Court in the cases of Commissioner of Internal Revenue (CRI) vs Seagate Technology (Philippines), and CIR vs Toshiba Information Equipment (Phils.), Inc.

Philippine Exporters Confederation, Inc. president Sergio R. Ortiz-Luis, Jr. earlier said exporters and micro, small, and medium enterprises have “very serious concerns” about the impact of RR 9-2021. Companies worry implementation procedures and requirements, particularly on filing for VAT refunds, will consume more time and money, both of which they are short of, Ortiz-Luis said.

READ: Exporters seek urgent resolution to burdensome new VAT regulation

The Pilipino Banana Growers and Exporters Association pointed out there is conflict between CREATE and RR 9-2021.

Information Technology and Business Process Association of the Philippines president Rey Untal earlier said RR 9-2021 is “hurtful and harmful to businesses” since the additional tax will be passed on to export-oriented firms.

Semiconductor and Electronics Industries in the Philippines Foundation, Inc. president Dan Lachica said RR 9-2021 will discourage foreign investors engaging in export activities to invest in the Philippines as it would be much cheaper to source raw materials and packaging supplies from foreign sources than from domestic suppliers.

For the electronics industry alone, Lachica said the new policy will cost the economy up to P28 billion in revenues and job loss for about 10,000 to 50,000 employees.

Confederation of Wearable Exporters of the Philippines executive director Maritess Jocson-Agoncillo said the new policy “directly cuts the profit center” of the wearable exports sector. Agoncillo said this will drive exporters to import materials and this “can marginalize the existence of the local support sectors such as the suppliers of the manufacturers of thread, button, zippers, and cartons.”

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