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PEZA seeks deferment of 12% VAT on locators’ local purchases

  • The Philippine Economic Zone Authority wants to keep the zero VAT on local purchases of registered enterprises
  • Such purchases were levied a 12% VAT under Bureau of Internal Revenue Revenue Regulations 9-2021 starting June 27
  • PEZA called the additional VAT an unnecessary expense that will make the Philippines unattractive to foreign investors

The Philippine Economic Zone Authority (PEZA) has asked the Department of Finance to defer implementation of the 12% VAT on local purchases of registered business enterprises (RBEs).

Bureau of Internal Revenue (BIR) Revenue Regulation (RR) No. 9-2021 implements a 12% VAT on export transactions and sale of services previously taxed 0% VAT, particularly those considered as export sales under Executive Order No. 226 or the Omnibus Investments Code of 1987 and other special laws. RR 9-2021 took effect on June 27.

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

The imposition of 12% VAT is contained in Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) Law.

PEZA said the deferment will give locators time to study the regulations; it will also provide investment promotions agencies and concerned government agencies opportunity to institute mechanisms to implement the new regulations.

PEZA expressed concern that the implementation of RR 9-2021 will add to the burden of RBEs and affect their overall competitiveness in the world market.

“The additional VAT is an unnecessary expense that will make the Philippines unattractive to foreign investors,” PEZA director general Charito Plaza said in a letter to Finance Secretary Carlos Dominguez III.

“Amidst the pandemic, the PEZA RBEs are the ones who helped keep the PH economy afloat. What we must do is to ensure that existing enterprises should stay and expand their operations instead of driving them away by removing their incentives and imposing another form of taxes,” she added.

Plaza also sought “confirmation that local purchases of PEZA export enterprises, whether from an export-oriented or domestic enterprise, shall be taxed at 0% VAT subject to the condition required under the provisions of Section 295 of RA 11534 and Section 5 of its IRR.”

Republic Act No. 11534 is otherwise known as the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) Law.

“The inclusion of the RR in the final draft of CREATE’s implementing rules and regulations and the amendment of the definition of ‘export sales’ in the law has created the impression and interpretation that sale to PEZA RBEs shall be automatically subject to 12% VAT.”

PEZA has requested a meeting with Dominguez and BIR commissioner Caesar Dulay to discuss its request and the impact of the RR on PEZA-registered enterprises.

PHILEXPORT appeal

Aside from PEZA, Philippine Exporters Confederation, Inc. (PHILEXPORT) president Sergio Ortiz-Luis, Jr. called on government to ensure processes and requirements for implementing the 12% VAT on indirect exports do not become another onerous burden for exporters and micro, small and medium enterprises.

READ: Exporters seek urgent resolution to burdensome new VAT regulation

In a letter to Dulay, Ortis-Luiz said member companies worry the implementation procedures and requirements under RR 9-2021, particularly on filing for VAT refunds, will consume more time and money, both of which they are short of.

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 the 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 that were previously taxed at 0% VAT but are 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

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.

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