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After expressing their concern on the planned 12% VAT on indirect exports by the Department of Finance, the Philippine Exporters Confederation, Inc. (PHILEXPORT) expressed relief over the government decision to suspend the implementation of Revenue Regulations (RR) 9-2021, the tax policy opposed by exporters and their domestic suppliers.
PHILEXPORT president Sergio R. Ortiz-Luis, Jr. said the deferment of the implementation of Bureau of Internal Revenue (BIR) RR 9-2021 is a “very welcome decision after severe cost and delivery pressures from many other export-related issues”.
The 12% value-added tax (VAT) on indirect exports will further squeeze the cash flow of exporters, while making local raw materials and services more expensive. Prior to this regulation, these export inputs are zero-rated.
PHILEXPORT chair George T. Barcelon said this positive development emerged from the July 21 hearing facilitated by the House Ways and Means Committee headed by chair Rep. Jose S. Salceda and attended by concerned stakeholders and government agencies.
“The deferment of RR 9-2021 with the concurrence of DOF Secretary Carlos Dominguez III is a big relief for direct and indirect exporters to continue their normal business operation procuring from local suppliers. We will await the issuance of the BIR revenue memorandum circular soon,” Barcelon said.
PHILEXPORT has strongly pushed for the immediate suspension of the imposition of a 12% value added tax (VAT) on export inputs/local purchases.
On June 22, Ortiz-Luis wrote to BIR Commissioner Cesar R. Dulay to relay cash-strapped companies’ apprehensions that the implementation procedures and requirements, particularly on filing for VAT refunds, would eat into their limited time and finances.
He then sent a letter on July 1 to Secretary Dominguez after the implementation of RR 9-2021, appealing for its immediate suspension and noting the rule “is already significantly hurting the export industry.”
In the letter, he also argued about the conflict in the provision of CREATE which grants zero rating on local purchases and which should have superseded RR 9-2021.
And last July 16, PHILEXPORT organized an online meeting with DOF Undersecretary Antonette Tionko, who was apprised by business leaders and trade officials of the serious damage that RR 9-2021 would inflict on various industries. Tionko, for her part, assured them that all their concerns and petition for suspension of the regulation would be raised to the finance secretary.
In a message during the committee hearing, Ortiz-Luis acknowledged the “patience and support” of the DOF in hearing out the concerns of exporters.
Meanwhile, Salceda in a statement after the hearing said BIR and Department of Finance (DOF) “have agreed to suspend the implementation of Revenue Regulations 9-2021, which imposed 12% VAT on certain exporter transactions that were previously taxed at 0%.”
He added: “The DOF and the BIR held talks with me over the weekend. We were supposed to have a hearing on Monday, but we deferred the briefing to Wednesday [July 21] out of deference to the Secretary [Dominguez], whose decision was to suspend the regulation first pending corrective legislation.”
RR 9-2021 was issued pursuant to Republic Act (RA) No. 10963, or the Tax Reform and Acceleration and Inclusion Act (TRAIN), which provides that certain transactions previously considered zero-rated shall be subject to 12% VAT.
With the decision to suspend, the following transactions will revert to their zero-rated status:
- Sale of raw materials or packaging materials to a non-resident buyer for delivery to a local export-oriented enterprise
- Sale of raw materials or packaging materials to an export-oriented enterprise whose export sales exceed 70% of total annual production
- Those considered export sales under Executive Order (EO) No. 226, or the Omnibus Investment Code of 1987, and other special laws
- Processing, manufacturing, or repacking goods for other persons doing business outside the Philippines, which goods are subsequently exported
- Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceed 70% of total annual production.
Salceda added that the DOF will implement the provision of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law which allows exporters to enjoy VAT zero rating on local purchases of goods and services.
“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 continued.
“This decision is very crucial. Manufacturing is only beginning to pick up this year, out of last year’s closures and work suspension. It will allow the recovery momentum of the sector to continue.”
He further said he will continue to work with BIR and DOF to write “corrective legislation” to address small exporters’ concerns over the registration to avail of incentives, refund system and audits.