by Mary Divine T. Derez / Policy Advocacy Officer / Export Development Council

07 March 2018

Published also in Business Mirror

THE Bureau of Internal Revenue (BIR) clarified that the zero-percent value-added tax (VAT) for indirect exports is status quo until the conditions cited in the recently passed Republic Act 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) law are satisfied.

Indirect exports include sale of raw materials or packaging materials to a nonresident local export-oriented enterprise and to an export-oriented enterprise whose sales exceed 70 percent and those considered export sales under Executive Order 226.

Section 31 (a) of the TRAIN law provides three conditions that are the successful establishment and implementation of an enhanced VAT-refund system that grants 90 days from the filing of VAT-refund application; all pending VAT-refund claims as of December 31, 2017, shall be fully paid in cash by December 31, 2019, and that the Department of Finance (DOF) shall establish a VAT-refund center in the BIR and Bureau of Customs. Upon satisfaction and implementation of all of these conditions, zero VAT for indirect exports will be lifted.

President Duterte vetoed some provisions of the TRAIN law, including the zero-rating of sales of goods and services to separate customs territory and tourism- enterprise zones, as this provision grants new incentives to suppliers of registered tourism enterprises. However, Section 31 (b) of the TRAIN law states that exemption under special laws or international agreements to which the Philippines is a signatory effectively subjects such sales to zero rate. These special laws include Republic Act 7948, or the amended Special Economic Zone Act, and RA 9593, or The Tourism Act of 2009.

The Export Development Council  recommended to retain the zero-percent VAT rate for indirect exporters who supply materials or services to direct exporters. Imposing VAT on local inputs would increase costs, from 3 percent to 8 percent, depending on the amount of local raw materials and services in the products. However, the DOF offered the establishment of a simplified VAT-refund system in its place.