Gov't suspends 12% VAT on exporters' purchases

Pending “corrective legislation,” the Department of Finance (DOF) and the Bureau of Internal Revenue (BIR) have agreed to suspend the implementation of Revenue Regulation 9-2021, which imposed 12-percent value-added tax (VAT) on certain exporter transactions previously taxed at zero percent, according to a report by BusinessMirror.

House Committee on Ways and Means Chairman Joey Sarte Salceda announced this on Wednesday, after his committee held a briefing also on Wednesday with several agencies and stakeholders amid exporters’ concerns that the said rule could “cripple industry.”

“The DOF agreed today [Wednesday] 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 (RA) 10963 or the Tax Reform and Acceleration and Inclusion Act (TRAIN) (Sections 106(A)(2)(a) and 108(B) of the Tax Code of 1997, as amended). This provides that certain transactions previously considered zero-rated shall be subject to 12-percent VAT upon satisfaction of two conditions: (1) The successful establishment and implementation of an enhanced VAT refund system, and that (2) All pending VAT refund claims as of December 31, 2017 shall be fully paid in cash by December 31, 2019.

However, Section 5 of Rule 18 of the recently signed implementing rules and regulations (IRR) for fiscal incentives under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act provides that VAT zero-rating on local purchases of registered  business enterprises (RBEs) may still apply, provided such locally purchased  goods and services are directly and exclusively used in the registered project or  activity of the RBE during the period of registration of the registered  project/activity of the enterprise.

However, some quarters said the DOF’s remarks were “vague” owing to Secretary Dominguez’s apparent caution in replying to reporters’ questions.

Asked if the review being done may be considered a deferment of the RR, Dominguez said this was “technically correct” given the implementation of the tax.

“Regulations were issued at the end of June. VAT returns are quarterly. So if we start implementing CREATE this quarter July, it’s technically deferred to this quarter and returns are due 25th day after the end of the third quarter,” Dominguez said.

Meanwhile, Dominguez told reporters on Wednesday that the review of Revenue Resolution (RR) 9-2021 imposing a 12-percent value-added tax on goods and services may be completed by the end of the month.

The new RR will slap a 12-percent value-added tax on the sales of certain goods and services that were previously subjected to zero-percent VAT.

With the decision to suspend, Salceda said 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 percent of total annual production;
  • Those considered export sales under Executive Order (EO) 226, or the Omnibus Investment Code of 1987, and other special laws (Section 106 (A) (2) (a) (5) of the Tax Code, as amended);
  • Processing, manufacturing, or repacking goods for other persons doing business outside the Philippines, which goods are subsequently exported; and
  • Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceed 70 percent of total annual production.
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