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Signed a regulation allowing exporters to pay no VAT on purchases made in their home country.

According to a Bureau of Internal Revenue (BIR) official, the new Revenue Regulation (RR) that will allow exporters to continue to enjoy 0% value-added tax (VAT) on their local purchases of goods and services will be released soon.

In an online public hearing on December 6, Larry Barcelo, Officer-in-Charge and Assistant Commissioner for BIR Legal Service, informed the House Committee on Ways and Means that the amendatory RR had been signed and will be published soon in a broad circulation newspaper.

“That RR has no number yet, but it was signed by both the Commissioner [of the BIR] and the Secretary [of Finance], so [we will still] publish it.” Under Sections 294 E and 295 D of Title XIII of the CREATE Act, as well as Sections 5, Rule 2 and Section 5, Rule 18 of the CREATE IRR, it implements the VAT zero-rating on local purchases of goods and services. So this will most likely be published next week,” Barcelo added.

The new RR modifies some elements of the contentious RR 9-2021, which went into effect in June and imposed a 12 percent VAT on indirect exports and sales of services that were previously taxed at zero percent.

Following vehement complaints from exporters, local suppliers, and other stakeholders who claimed that implementing the 12 percent VAT would kill the pandemic-hit business, the BIR halted implementation of RR 9-2021 in July through RR No. 15-2021 to allow for modifications.

The postponement, according to RR 15-2021, is entirely due to the Covid-19 epidemic, and new amendatory regulations will be released.

System of refunds

As a result, the Export Development Council’s Networking Committee on Legislative Advocacy and Monitoring (EDC – NCLAM) wrote to Trade Secretary Ramon Lopez, expressing support for the VAT policy’s eventual implementation “provided that the preconditions for the removal of VAT exemption are met and an enhanced VAT refund system is in place.”

In his letter to Lopez, who is also the EDC chair, Rami Amer Hourani, vice chair of the EDC-NCLAM, noted that the BIR has not yet established a new VAT refund system and continues to use the old system, which gives stakeholders little confidence that the VAT refund will be completed within the required 90 days.

“If the procedure could be automated, it would make things a lot easier for everyone concerned.” According to Hourani, this would be achievable under the proposed computerized invoicing system, which the BIR plans to implement in 2023.

To avoid a situation where new VAT applications are reimbursed ahead of previous claims, the reimbursement of VAT backlog to multiple companies should also be completed.

The committee also advocated establishing VAT refund centers in the BIR and Bureau of Customs to devolve application processing, which is presently done only in the National Capital Region.

The letter to Lopez stated, “This power should be devolved to the various Revenue District Offices in order to ensure that everyone is able to avail of the option to claim a VAT Refund.”

MSME should be included.

It also requested the Board of Investments to “reduce the time it takes to register MSME (micro, small, and medium enterprises) exporters so that their participation in the tax system is as simple as possible.”

Hourani went on to say that the ability to register should not be limited to new and/or expanding businesses because this would prevent MSMEs from taking advantage of new tax breaks.

“Any sensible execution of this legislation would provide the same opportunities available to small businesses as they are to huge enterprises.” Otherwise, we risk mistakenly taxing the least profitable and most vulnerable members of the business community,” he explained.

In addition, the committee requested legal changes that would exempt local purchases of goods and services from VAT.

The EDC – NCLAM demanded that RR 9-2021 be deferred “until such time as the Philippine export industry has fully recovered from the economic impact of the pandemic and an expanded, effective, and efficient VAT refund mechanism has been implemented,” according to the EDC – NCLAM.

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