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BIR officially suspends 12% VAT on exporters’ local purchases

  • The Bureau of Internal Revenue officially deferred implementation of Revenue Regulations No. 9-2021 until an amendment is issued
  • RR 9-2021 imposes a 12% VAT on previously zero-rated local purchases of exporters
  • The deferment takes immediate effect and is “in view of the continuing COVID-19 pandemic and its impact to the export industry”
  • Various stakeholders and business groups sought a repeal of RR 9-2021, which they see as additional cost

The Bureau of Internal Revenue (BIR) has officially deferred implementation of Revenue Regulations (RR) No. 9-2021, which imposes a 12% value-added tax on previously zero-rated indirect exports, pending an amendment.

In RR 15-2021 dated July 21 and signed by Finance Secretary Carlos Dominguez III on July 27, BIR said the deferment takes effect immediately and is “in view of the continuing COVID-19 pandemic and its impact to the export industry.”

The deferment came after calls from various stakeholders and business groups to repeal RR 9-2021, seen as an additional burden on exporters.

READ: Business groups call for 12% VAT ruling repeal

Last July 21, Albay 2nd district representative and Lower House Committee on Ways and Means chair Jose Ma. Clemente Salceda announced the Department of Finance (DOF) and BIR had agreed to suspend implementation of RR 9-2021 “pending corrective legislation.”

Salceda said DOF will instead implement the provision of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act allowing exporters to enjoy zero VAT on local purchases of goods and services directly and exclusively used in the registered project or activity.

READ: BIR defers 12% VAT on exporters’ local purchases

Dominguez on July 21 also said DOF was reviewing RR 9-2021, which meant its implementation is technically deferred.

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

Philippine Exporters Confederation, Inc. (PHILEXPORT) president Sergio Ortiz-Luis, Jr. earlier said the deferment of the implementation of RR 9-2021 was a “very welcome decision after severe cost and delivery pressures from many other export-related issues.”

PHILEXPORT bared that exporters and micro, small, and medium enterprises had “very serious concerns” about the impact of the new regulation.

PHILEXPORT had opposed the imposition of VAT on exports during consultations on the TRAIN Act, which took effect in 2018.

It pointed out that taking away the zero VAT rating for indirect exports would hurt the entire export community and the local industries the Department of Trade and Industry was trying to develop and strengthen.

Other stakeholders’ groups also called on government to repeal RR 9-2021, as did the Philippine Economic Zone Authority (PEZA).

PEZA in a memorandum dated July 6 said its official position was that RR 9-2021 contradicts provisions of the CREATE Law, which specifically provides for 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.

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

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

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

Lachica said that for the electronics industry alone, the new policy would 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. This, she said, would 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.”

RR 9-2021, which was issued on June 11 and took effect on June 27, imposes a 12% VAT on certain export transactions.

The implementation of RR No. 9-2021 satisfies conditions set forth in the Tax Reform for Acceleration and Inclusion 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 full cash payment by December 31, 2019 of all pending VAT refund claims as of December 31, 2017. – Roumina Pablo

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