BIR imposes 12% VAT on indirect exports, certain transactions with 0% VAT

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  • Indirect exports and sale of services previously taxed at zero rate now subject to 12% VAT in compliance with the Tax Reform for Acceleration and Inclusion law
  • BIR Revenue Regulation No. 9-2021 levies 12% VAT on certain transactions previously taxed at 0% VAT such as sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed 70% of total annual production
  • Sale of services and use or lease of properties, such as processing, manufacturing or repacking goods for other persons doing business outside the Philippines whose goods are subsequently exported, will also be levied a 12% VAT

Indirect exports and sale of services previously taxed at zero rate is now subject to 12% value-added tax in compliance with the Tax Reform for Acceleration and Inclusion (TRAIN) law, according to a new regulation from the Bureau of Internal Revenue (BIR).

BIR Revenue Regulations (RR) No. 9-2021 issued on June 11 imposes 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 No. 10963 or the TRAIN law.

Transactions under subparagraphs (3), (4), and (5) of Section 106(A)(2) of the Tax Code previously taxed at 0% VAT but will now be subject to 12% VAT and no longer considered as export sales are the following:

  • Sale of raw materials or packaging materials to a non-resident buyer for delivery to a resident local export-oriented enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer’s goods and paid for in acceptable foreign currency, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas.
  • Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed 70% of total annual production
  • Those considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, and other special laws

Also covered by 12% VAT are sale of services and use or lease of properties under subparagraphs (1) and (5) of Section 108(B) of the Tax Code:

  • Processing, manufacturing or repacking goods for other persons doing business outside the Philippines whose goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of BSP
  • Services performed by subcontractors and or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceed 70% of the total annual production

RR No. 9-2021 takes effect after it is published in newspapers of general circulation.

The TRAIN law was signed on December 19, 2017 to amend certain provisions of the Tax Code. It is the initial package of the government’s Comprehensive Tax Reform Program and took effect in 2018.

The Export Development Council had earlier recommended retaining the 0% VAT for indirect exporters who supply materials or services to direct exporters, noting that imposing VAT on local inputs would increase costs from 3% to 8%, depending on the amount of local raw materials and services in the products. The Department of Finance offered to establish a simplified VAT refund system instead.

RR 9-2021 amends certain provisions of RR No. 16-2005, as amended by RR No. 13-2018 and as further amended by RR No. 26-2018. – Roumina Pablo

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