On local purchases and indirect exports
The government is bent on imposing a 12 percent VAT on local purchases of economic zone locators and their indirect constructive exports, and implement a refund system, emboldening locators’ objection and plans to seek court redress stating this additional tax will certainly affect their viability at this time of economic recession.
Official data showed that in 2020 alone, Philippine Economic Zone Authority (PEZA)- registered enterprises’ total domestic purchases reached P280.922 billion. If that amount had been imposed the 12 percent, the government should have collected P33.710 billion VAT, data showed.
Already, the Bureau of Internal Revenue (BIR) has issued Revenue Regulation 9-2021 imposing the collection of the 12 percent VAT on PEZA firms’ local purchases effective June 27, 2021.
On top of the VAT on their local purchases, the BIR is also set to collect VAT on the indirect exports (PEZA to PEZA) and constructive exportation/inter-zone sales between locators. In 2020, combined PEZA indirect exports reached $8.881 billion.
Following the strong opposition from PEZA and their registered enterprises, an official source said that the BIR is drafting a clarificatory revenue memorandum circular (RMC) that will be consistent with the CREATE and TRAIN laws provisions, including the 12 percent VAT.
However, the same source said that the RMC’s intention is only to clarify how the locators can claim the same for refund under the Enhanced VAT Refund system.
“This will not be a relief at all for the locators,” a source said adding this will not maintain the current VAT zero rating on ecozone locators’ local purchases and indirect/constructive exports and inter-zonal sales as provided in the VAT and the PEZA law.
While the Department of Finance is also amenable to exempt from VAT the constructive exports and interzonal sales between locators, it is, however, bent on collecting the ecozone locators’ local purchases even if these are connected to their registered activities.
Already, some ecozone locators are planning to file for a temporary restraining order (TRO) against the BIR move. Locators also questioned the so-called Enhanced VAT Refund system stressing this is not going to work efficiently.
An official said that if the intention really is to exempt the constructive exports, this should not be imposed with the VAT in the first place for efficiency purposes.
PEZA Director General Charito B. Plaza said the BIR has put on hold the collection of the 12 percent VAT following various complaints, but did not defer the implementation of RR 9-2021.
As such, PEZA enterprises continue to charge the VAT for fear that if the RR 9-2021 is upheld, the seller (whether local supplier or another PEZA export enterprise) will end up liable to pay the VAT to BIR.
“PEZA locators are bearing the brunt already of the sudden increase in their cost of goods and services with the implementation of the VAT refund system. Also, as we operate our own public ecozones (power distribution, lot/sfb rental) and provide services to all our locators, we will now be forced to impose VAT on our direct transactions with locators,” an official said.
“We are besieged by queries of concern from zone locators seeking PEZA’s guidance. PEZA companies are awaiting clarification in the RR because CREATE clearly provides for the VAT zero rate incentive to export enterprises. With RR 9-2021, not only their local purchases are now subject to VAT, even their sales of manufactured goods and subcontracted services to other PEZA enterprises are now also subject to VAT,” the source said.