BIR suspends 12% VAT on exporters’ purchases

by Louella Desiderio, Elijah Felice Rosales (The Philippine Star), 22 Jul 2021

MANILA, Philippines — The Bureau of Internal Revenue (BIR) has agreed to suspend the imposition of the 12 percent value-added tax (VAT) on local purchases of raw materials and packaging products of exporters, according to the Philippine Economic Zone Authority (PEZA) and House ways and means committee chairman Rep. Joey Salceda.

The Philippine Exporters Confederation Inc. (Philexport), meanwhile, said it is still waiting for an official statement from the Department of Finance (DOF) and BIR on the deferment.

But Finance Secretary Carlos Dominguez yesterday told reporters the DOF is still reviewing the matter and a decision would be reached before July ends.

In a Viber message to reporters yesterday, PEZA director general Charito Plaza said the implementation of BIR Revenue Regulation 9-2021, which imposes 12 percent VAT on previously VAT zero-rated raw materials and packaging products purchased by exporters from local suppliers, is being deferred.

“BIR as soon as possible is advised to issue the deferment memo,” she said.

In a statement, Salceda said the BIR and DOF have agreed to suspend the implementation of RR 9-2021 following a briefing yesterday with the agencies and stakeholders, facilitated by the House committee on ways and means.

“I thank Secretary Dominguez for this decision that will help the country’s export industry get the breather it needs to recover. The DOF agreed to suspend RR 9-2021 pending new legislation that will correct the rule from the Tax Reform for Acceleration and Inclusion (TRAIN),” Salceda said.

RR 9-2021 was issued pursuant to the provisions of Republic Act 10963 or TRAIN Law, which provides that certain transactions previously considered zero-rated shall be subject to 12 percent VAT once the following conditions have been met: successful establishment and implementation of an enhanced VAT refund system, and full payment in cash by Dec. 31, 2019 of all pending VAT refund claims as of Dec. 31, 2017.

Salceda said the DOF would be implementing the provision of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, which allows exporters to enjoy zero VAT on local purchases of goods and services directly and exclusively used in registered project or activity.

“CREATE hopes to ease the operations of exporters, enhance the country’s competitiveness, and encourage sourcing of materials from local suppliers. That’s the spirit of the legislation. That’s why it insists on the zero-rating for local inputs, on top of enhanced deductions for them,” he said.

Philippine Exporters Confederation Inc. chairman George Barcelon said in a telephone interview that the group is hopeful there would be an official announcement from the DOF and BIR on the deferment of the RR.

“We still have to wait for an official ruling on this issue,” he said.

Foreign Buyers Association of the Philippines president Robert Young said the DOF and BIR are expected to issue an announcement on the RR soon.

He said around $100 million worth of present and forthcoming orders for hard goods and $200 million worth of soft goods would be affected by RR 9-2021 if it would not be deferred.

Salceda said the move to suspend the implementation of the imposition of the 12 percent VAT is crucial as manufacturing is only beginning to pick up this year following the closures and work suspension last year due to the pandemic.

“It will allow the recovery momentum of the sector to continue,” he said.

To address exporters’ concerns on the refund system and audits, he said he would continue to work with the BIR and DOF to come up with “corrective legislation.”

Dominguez said since RR 9-2021 was released toward the end of June and enforcement begins in July, exporters only need to adjust their tax payments for the third quarter, not for the second quarter.

“The regulations were issued end of June. VAT returns are quarterly. If we start implementing CREATE this quarter July, it is technically deferred to this quarter and returns are due 25th day after the end of the third quarter,” Dominguez said.