The sudden increase in the cost of goods and service of registered business enterprises (RBEs) in economic zones due to the imposition of value-added tax (VAT) could put in peril billions of pesos worth of annual purchases from local suppliers, according to the Philippine Economic Zone Authority (PEZA).
Pre-pandemic, annual domestic purchases of RBEs amount to P250 billion, according to PEZA data but this rose to P291B in 2020 despite the pandemic.
The agency is yet to receive a reply from the Department of Finance (DOF) on its request to suspend the collection VAT on domestic purchases until the conflicting provisions on existing laws are clarified.
A government source said RBEs will be discouraged from sourcing locally and would opt to import at a much cheaper cost since these are considered VAT-free
The source said though these purchases will be subject to refund system, exporters will still have to shell out the expense with no assurance of prompt collection.
Revenue Regulation (RR ) No. 9-2021 which took effect on June 27, 2021, identified transactions that shall now be subject to the 12 percent VAT which are previously taxed at zero percent, particularly those considered as export sales under the Omnibus Investments Code of 1987 and other special laws.
In a letter to DOF Secretary Carlo Dominguez III, Plaza sought for clarification on the RR in relation to the express provision of the recently passed Corporate Recovery and Tax Incentives for Enterprises Act (CREATE) Law (RA No. 11534).
“The inclusion of the RR in the final draft of CREATE’s implementing rules and regulations and the amendment of the definition of ‘export sales’ in the law has created the impression and interpretation that sale to PEZA RBEs shall be automatically subject to 12 percent VAT.”
PEZA expressed concern the implementation of the RR will add to the burden of the RBEs and will in turn affect their overall competitiveness in the world market.
Plaza said “The additional VAT is an unnecessary expense that will make the Philippines unattractive to foreign investors.
She said this will severely impact on the viability of their operations especially at this time of pandemic and recession.
