VAT forcing exporters to import than source locally — SEIPI

Published July 13, 2021, 2:53 PM

by Bernie Cahiles-Magkilat

The electronics and semiconductor industry, the country’s single largest dollar earner accounting for 60 percent of the country’s total exports, said some companies are transferring their domestic purchases and indirect exports to foreign suppliers because the imposition of value added tax (VAT) on these transactions make their operations in the Philippines more costly.

The Semiconductor and Electronics Industries in the Philippines Foundation, Inc. (SEIPI) submitted separate appeal letters to Trade and Industry Secretary Ramon Lopez and Bureau of Internal Revenue (BIR) Commissioner Caesar R. Dulay urging to stop the implementation of the 12 percent VAT under Revenue Regulation 9-2021.

RR No. 9- 2021, which has an effectivity date on June 27, 2021, imposes 12 percent VAT on constructive export transactions or indirect exports and exporters’ purchases from domestic suppliers. Previously, these transaction were granted zero-VAT rating.

In the letter to Lopez, SEIPI President Dan C. Lachica conveyed, “As of writing, we have already received information from some members that volumes from domestic constructive exporters will be transferred to foreign suppliers due to the additional cost caused by the 12% VAT. Despite the risks of lost export revenues and increased unemployment, the BIR has so far been unresponsive regarding our request for reconsideration. In line with this, we humbly ask for your assistance in clarifying these concerns.”

By imposing the 12 percent VAT, Lachica said that local purchases will only be passed on to the export oriented manufacturing companies, which will need to allocate more resources and manpower to handle the long and arduous refund process.

“We understand that there are outliers who abuse the VAT zero-rating but penalizing the industries will only decrease the competitiveness of the Philippines for investors. The electronics industry is projected to grow at 7 percent in 2021 despite the pandemic, and we hope to continue this upward trend to further contribute to the country’s goal of a more resilient economy,” said Lachica.

In the letter to Dulay, SEIPI expressed hope that BIR will reconsider reviewing the implementation of this policy, which will undoubtedly decrease the Philippines’ overall competitiveness as an investment destination.

“While we fully support the Bureau’s implementation of all tax policies as shown by our industry’s compliance, we do have some concerns regarding the newly published Revenue Regulation No. 9-2021, which implements the imposition of 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 (e.g. processing, manufacturing or repacking of goods to be exported), services by contractors and subcontractors, among others. This added VAT will be passed on to the export-oriented manufacturing industries and should this be even refundable, the process takes years to consummate. This runs counter to the Ease of Doing Business,” said the SEIPI letter signed by Lachica.

Lachica even said that while SEIPI reiterated that while they understand that “there are outliers who abuse the VAT-Zero rating but penalizing the whole industry, and consequently, the whole economy will just be an additional burden for companies who have been compliant and are currently doing everything they can to continue production during a global pandemic and contribute to national economic recovery.”