Business groups: Repeal 12% VAT on exporters’ local purchases

by Louella Desiderio (The Philippine Star), 15 Jul 2021

MANILA, Philippines — Business groups want the Bureau of Internal Revenue (BIR) to repeal the imposition of 12 percent value-added tax (VAT) on local purchases of exporters and indirect exports, saying its implementation may lead to job losses and discourage investments in the country.

In an online press conference, the business groups, consisting of the Information Technology and Business Process Association of the Philippines, Semiconductor and Electronics Industries in the Philippines Foundation Inc. (SEIPI), Confederation of Wearable Exporters of the Philippines (CONWEP) and Pilipino Banana Growers and Exporters Association and Philippine Ecozones Association said they are seeking the revocation of BIR Revenue Regulations 9-2021, which took effect last month.

Other groups that joined the event were the American Chamber of Commerce of the Philippines, Canadian Chamber of Commerce of the Philippines, European Chamber of Commerce of the Philippines, Japanese Chamber of Commerce and Industry of the Philippines Inc., Korean Chamber of Commerce of the Philippines, and Tax Management Association of the Philippines.

SEIPI president Dan Lachica said his group has written a letter to BIR Commissioner Caesar Dulay and other government officials, including Trade Secretary Ramon Lopez, regarding the industry’s concerns on RR 9-2021, which imposes the 12 percent VAT on the transactions of exporters that were previously VAT zero-rated such as export sales of raw materials and packaging, outsourced services such as processing, manufacturing or repacking of goods to be exported, and services by contractors and subcontractors.

Lachica said this VAT would be passed on to the export-oriented manufacturing industries and if refundable, would take years to process.

“This will severely lower the ease of doing business and discourage investors,” he said.

Given the additional cost of the 12 percent VAT, some SEIPI members are already looking to transfer volumes from domestic suppliers to foreign suppliers.

“Rough numbers I’ve compiled would basically entail moving something like P10 billion to P28 billion, which is about two percent of our local value-add to suppliers outside of the Philippines,” he said.

On top of decreased revenue for local suppliers, he said there would be a reduction in headcount estimated to be from 10,000 to 50,000 workers.

“We appeal to the DOF, to BIR, to our legislators, to our Cabinet to influence BIR to revoke this policy,” he said.

For her part, CONWEP executive director Maritess Agoncillo said the garments sector wants the government to reconsider the implementation of RR 9-2021 as the industry has yet to recover from the economic impact of the pandemic, with factories not yet operating at full capacity.

In December last year, she said over 20,000 workers were laid off by the group’s members.

“Currently we are seeing new rules that can affect our competitiveness…Can we request to pause on RR 9-2021? We request urgent repeal of this,” she said.

PHILEA president Francisco Zaldarriaga said RR 9-2021 is a lethal blow to the economy and its implementation is ill-timed as firms have yet to bounce back from the effect of the pandemic.

IBPAP president and chief executive officer Rey Untal said RR 9-2021 is seen to affect the information technology – business process management’s growth.

“We get positive movements towards growth which is a good step forward, but we are also dealing with headwinds such as this BIR issue and work-from-home issue…If we don’t deal with those quickly, it is one step forward and two steps backward. And while we have not done a detailed assessment in terms of how it will impact growth, I can surmise that with the two combined, we can easily grow by 50 percent less than what we originally anticipated,” he said.

He said the IBPAP is looking to grow five percent this year and to maintain that next year.

Trade Undersecretary Ceferino Rodolfo said last month the Department of Trade and Industry has raised to the DOF the businesses’ concerns on RR 9-2021.

“We have raised this issue with the DOF and we could expect soon what they call an RMC (Revenue Memorandum Circular). I think it’s a clarification to the RR 9-2021 that would address this issue. So, we should expect that coming out soon,” he said.