Good for exporters and their SME local suppliers: Salceda thanks Dominguez for deferring RR 9-2021

July 21st, 2021

Good for exporters and their SME local suppliers: Salceda thanks Dominguez for deferring RR 9-2021, allowing CREATE rule to prevail; BIR, DOF to withdraw regulation imposing 12% VAT on certain exporter inputs

House Ways and Means Chair Joey Sarte Salceda (Albay, 2nd district) announced today that the Bureau of Internal Revenue (BIR) and the Department of Finance (DOF) have agreed to suspend the implementation of Revenue Regulation 9-2021, which imposed 12% Value-Added Tax (VAT) on certain exporter transactions that were previously taxed at 0%. The suspension of the RR comes after Salceda held a briefing with the agencies and stakeholders, a facilitated by the House Committee on Ways and Means today.

“I thank Secretary Dominguez for this decision that will help the country’s export industry get the breather it needs to recover. The DOF agreed today to suspend RR 9-2021 pending new legislation that will correct the rule from the Tax Reform for Acceleration and Inclusion (TRAIN),” Salceda said.

“The DOF and the BIR held talks with me over the weekend. We were supposed to have a hearing on Monday, but we deferred the briefing to Wednesday out of deference to the Secretary, whose decision was to suspend the regulation first pending corrective legislation,” Salceda added.

RR No. 9-2021 was issued pursuant to the provisions of Republic Act (RA) No. 10963 or the Tax Reform and Acceleration and Inclusion Act (TRAIN) (Sections 106(A)(2)(a) and 108(B) of the Tax Code of 1997, as amended) which provide that certain transactions previously considered zero-rated shall be subject to 12% VAT upon satisfaction of two conditions: (1) The successful establishment and implementation of an enhanced VAT refund system, and that (2) All pending VAT refund claims as of Dec. 31, 2017 shall be fully paid in cash by Dec. 31, 2019.

With the decision to suspend, the following transactions will revert to their zero-rated status

1. Sale of raw materials or packaging materials to a non-resident buyer for delivery to a local export-oriented enterprise;
2. Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed 70% of total annual production;
3. Those considered export sales under Executive Order (EO) No. 226, or the Omnibus Investment Code of 1987, and other special laws (Section 106 (A) (2) (a) (5) of the Tax Code, as amended);
4. Processing, manufacturing, or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported; and
5. Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceed 70% of total annual production.

Salceda adds that the DOF will implement the provision of the Corporate Recoivery and Tax Incentives for Enterprises or CREATE Law, which allows exporters to enjoy VAT zero rating on local purchases of goods and services directly and exclusively used in its registered project or activity.

“CREATE hopes to ease the operations of exporters, enhance the country’s competitiveness, and encourage sourcing of materials from local suppliers. That’s the spirit of the legislation. That’s why it insists on the zero-rating for local inputs, on top of enhanced deductions for them.”

“This decision is very crucial. Manufacturing is only beginning to pick up this year, out of last year’s closures and work suspension. It will allow the recovery momentum of the sector to continue,” Salceda said.

“I told the DOF and the BIR that the issue was very personal to me, as my district hosts household-based suppliers of raw materials for exports. During the 2008 Global Financial Crisis, we were hit hard by a slump in global demand, to the point that the government under President Arroyo had to send help and that was when the program DOLE now calls TUPAD was invented. If exporters are unable to successfully pursue refund claims on time, they might be forced to pass the costs on, and our competitiveness will suffer. We can’t afford to lose any more jobs that we already did to COVID-19,” Salceda explained.

Salceda to work with DOF, BIR on corrections

Salceda also said that he will continue to work with BIR and DOF to write “corrective legislation” to address small exporter concerns on the refund system and on audits.

“The DOF says one issue with the audit system, that forces them to audit everyone who seeks a refund, is that the Commission on Audit is also very strict with the refund system. So, my proposal is to relax the rules a bit for small de minimis claims, since it’s really not worth the time of tax administration,” Salceda said.

“That practice of risk-based auditing is already the norm in most advanced tax jurisdictions. You go to Japan or Singapore to purchase some goods as a tourist, and at the airport, you can get your VAT refund over the counter. Ideally, that’s a system you want here as well,” Salceda remarked.

“The DOF seems intent on modernizing our tax administration and closing down loopholes. We’ll work together as we always have during this administration to see how we can continue to improve the system,” Salceda added.

“I thank Secretary Dominguez for the decision they made today. It satisfied stakeholder concerns and their commitment to draft corrective legislation with me is a productive step forward,” Salceda concluded.