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Exporters seek urgent resolution to burdensome new VAT regulation

  • Processes and requirements under Revenue Regulations No. 9-2021 should not unduly burden exporters and MSMEs, according to the Philippine Exporters Confederation
  • RR 9-2021, which takes effect on June 27, 2021, slaps 12% VAT on indirect exports
  • Until an electronic system for filing is developed, the Bureau of Internal Revenue should decentralize processing of VAT refunds, said PHILEXPORT president Sergio R. Ortiz-Luis, Jr.
  • To avoid additional paperwork, the Bureau of Internal Revenue should also issue rules on automatic assessment of VAT refunds, Philexport proposed

The Philippine Exporters Confederation, Inc. (PHILEXPORT) issued an urgent call for government to ensure processes implementing the 12% value-added tax on indirect exports do not further burden exporters and micro, small and medium enterprises (MSMEs).

In a letter to Bureau of Internal Revenue (BIR) commissioner Cesar Dulay dated June 22, PHILEXPORT president Sergio R. Ortiz-Luis, Jr. said exporters and MSMEs have “very serious concerns” about the impact of Revenue Regulations (RR) No. 9-2021 that need to be quickly addressed.

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

RR 9-2021 imposes 12% VAT on exports and sale of services previously taxed 0% VAT as contained in Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law. Dated June 9, 2021, the regulation is set to take effect on June 27.

Ortiz-Luis said 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.

Already discouraged and weighed down by the pandemic, entrepreneurs are hoping for “a favorable and urgent response on these issues” to help them recover from their losses and continue their business operations, he continued.

One of these major concerns is the requirement to physically file for VAT refunds at the BIR’s VAT Credit Audit Division (VCAD) in Quezon City.

“This is the exporter/taxpayers’ money that they are refunding. Imposing difficult processes is not fair, considering that there is cost of money and the negative impacts on their cash flows, particularly of MSMEs,” Ortiz-Luis pointed out.

He suggested that until an electronic system for filing is developed, the BIR should decentralize the processing of VAT refunds by setting up VCAD branch offices that can decide and act on VAT refund applications and even release the funds.

Another issue raised is the need to keep and duplicate voluminous documents, which companies regard as yet another unnecessary and additional process that transfers the burden of proof on their shoulders.

Ortiz-Luis suggested that the BIR instead issue rules on automatic assessment of VAT refunds where input VAT exceeds output VAT in the case of MSME exporters without further need for separate forms and supplementary evidence.

“Exports account for some 30% of the country’s GDP [gross domestic products] and failures in this refund system will be a disincentive to exporters,” he said.

Also being questioned is the linking of incentives to the Strategic Investments Priorities Plan (SIPP), as Ortiz-Luis said the priority investment sectors may change depending on leadership.

Under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) law, an SIPP should be drafted that will identify priority projects or activities that will receive incentives from the government.

Exporters/exports should be a permanent beneficiary under the SIPP, Ortiz-Luis stated.

Furthermore, enterprises are pushing to have a provision included in RR 9-2021 on the full VAT refund in cash—not in the problematic tax credit certificates—within the 90-day timeframe for BIR to process and grant claims for VAT refunds.

“An efficient refund system through cash will help lessen the burden of this new policy,” Ortiz-Luis said.

And to avoid reported anomalies that have hounded the VAT refund system, he said “a system of track-and trace will easily address this problem without disrupting the status quo especially exporters who are already [under] so much pressure.”

The policy was one of the major topics in the recent PHILEXPORT general membership meeting, where member-exporters expressed frustration, anger, and confusion over the new directive, noting it seems to make it convenient for regulators to plug issues such as smuggling, while leaving exporters and MSMEs to address the negative impacts on them.

Exporters also noted government’s pro-export and pro-MSME statements leave much to be desired since regulations such as RR 9-2021 negatively impacts their business.

PHILEXPORT has 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 local industries the Department of Trade and Industry is trying to develop and strengthen.

Transactions under the National Internal Revenue Code (Tax Code) of 1997 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 the 12% VAT is the 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 – Roumina Pablo


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