The Department of Finance-Technical Working Group (DOF-TWG) has recommended to exempt from VAT payments local purchases of goods and services by registered business enterprises (RBEs) for their direct and exclusive use, except for six services identified under a planned negative list. In a draft letter, Finance Secretary Benjamin E. Diokno has instructed Bureau of Internal Revenue Commissioner Romeo D. Lumagui, Jr. to issue a Revenue Regulation (RR) to effect the DOF-TWG decision. “To this end, we have agreed to adopt a negative list of direct and exclusive costs and expenses,” Diokno said identifying the following services as janitorial services; security services; financial services; consultancy services; marketing and promotion; and goods used or services rendered for administrative operations such as human resources (HR), legal, and accounting. The negative list contains items that are generally classified as not directly and exclusively used and may not, therefore, be entitled to VAT zero-rating. As such, Diokno’s draft letter said “BIR is instructed to immediately issue a revenue regulation (RR) containing the above-identified negative list of services.” The BIR is also directed to set reasonable standards to guide RBEs on how to justify expenses which fall within the negative list. Based on the draft letter to the BIR, the concerned investment promotion agency (IPA) shall issue a VAT-zero-rating certificate for the local purchases that are directly and exclusively used in the registered project or activity. However, should the expenses do fall within the negative list, RBEs are still given the opportunity to justify that one or more of the expenses otherwise included in the negative list are still directly and exclusively used in their registered project. Upon determination of the concerned IPA that the expenses included in the negative list are directly and exclusively used in the registered project or activity, a VAT zero-rating certificate may be issued to the RBE. This is without prejudice to the BIR's power to conduct post audit, and to the latter's authority to disallow the expenses if found not directly and exclusively used and to assess the appropriate amount of taxes, the letter explained. Diokno’s letter acknowledged the position of the DOF-TWG to set definitive or clarificatory guidelines to properly identify costs and expenses which may be treated as directly and exclusively used by qualified projects or activities to guide all lPAs and RBEs in applications for VAT zero-rating. The RR, which is expected to be issued within the month (April), is seen settle the ongoing dispute between the BIR and RBEs on the VAT zero rating on their cost and expenses for activities that they use directly and exclusively in their operations.  At present, the BIR insists that under the CREATE Law RBEs must pay VAT subject to refund later, which the RBEs strongly contested.