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Cargo plane2A newly released ruling of the Bureau of Internal Revenue (BIR) clarified the coverage of value-added tax (VAT) exemptions for the passenger and cargo transportation sector in the Philippines.

In Revenue Regulation (RR) No. 15-2015 dated December 28 and signed by Finance Secretary Cesar Purisima and Revenue commissioner Kim Henares, BIR revised several sections of RR No. 16-2005, which provided in 2005 the list of VAT exemptions and regulations.

Section 2 of RR 15-2015 now reads: “the transport of cargo by international carriers doing business in the Philippines shall be exempt from VAT pursuant to Sections 109(1) (E) of the NIRC, as amended by RA No. 10378, as the same is subject to Common Carrier’s Tax (Percentage Tax on International Carriers) under Section 118 of the NIRC, as amended,” RR 15-2015 adds.

A source from the shipping industry told PortCalls the new regulation is a clarification of the old ruling which stated that foreign cargoes were zero-rated.

Likewise, the revised ruling said “the transport of passengers by international carriers doing business in the Philippines shall be exempt from value-added tax (VAT) pursuant to Sections 109(1)(S) of the NIRC (National Internal Revenue Code), as amended by RA (Republic Act) No. 10378.”

The new regulation also states that foreign carriers exempt under the said rules “shall not be allowed to register for VAT purposes.”

VAT exemption for vessels

Moreover, the sale, importation, or lease of passenger or cargo vessels and aircraft, including engine, equipment, and spare parts, for domestic or international transport operations were also made VAT-exempt.

Importation and local purchase of passenger or cargo vessels is, however, subject to restrictions on vessel importation and mandatory vessel retirement by the Maritime Industry Authority.

Previously, under RR 16-2005, VAT exemption for the sale, importation, or lease of passenger or cargo vessels and aircraft, including engine, equipment, and spare parts, only applied to vessels 150 tons and above, and was subject to age limits and the provisions of R.A. No. 9295 or the Domestic Shipping Development Act of 2004.

Imports of fuel, goods, and supplies by persons engaged in international shipping or air transport operations is also VAT exempt, provided these supplies “shall be used exclusively or shall pertain to the transport of goods and/or passenger from a port in the Philippines directly to a foreign port, or vice versa, without docking or stopping at any other port in the Philippines unless the docking or stopping at any other Philippine port is for the purpose of unloading passengers and/or cargoes that originated from abroad, or to load passengers and/or cargoes bound for abroad.”

If any portion of such fuel, goods, or supplies is used for other purposes, such portion will be imposed a 12% VAT.

Moreover, VAT was previously only at 10% for portions of supplies carried that got unloaded at Philippine ports other than the designated port of loading.

The new regulation will take effect 15 days after its publication in any newspaper of general circulation. – Roumina Pablo

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