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Philippines: Revised VAT zero-rating to encourage local sourcing
MANILA, Philippines — The revised regulations on value added tax (VAT) zero-rating is seen to encourage Philippine Economic Zone Authority (PEZA)-registered business enterprises (RBEs) to source more of their service requirements locally.
In a message to reporters, PEZA director-general Tereso Panga explained that before the revised guidelines, RBEs were exposed to VAT payments because the existing revenue memorandum circulars (RMCs) limited the goods and services to be covered by the zero-VAT rating incentive.
As a consequence, Panga said this increased the cost of doing business for locators, prompting some of them to outsource their service requirements abroad to avoid exposure to VAT.
“Some locators have resorted to importing their materials as it is easier to avail of tax and duty free incentive than sourcing them from the local market given the grey area in BIR’s definition for direct and exclusive use in a registered activity,” Panga said.
“With the revised guidelines, this will encourage the locators to localize their outsourcing of goods and services..this will increase value adding in the country and facilitate the integration of local suppliers of goods and services into the ecozone value chain,” he said.
In a post on his Facebook page, Panga explained that a key reform in the BIR revised revenue regulation is the provision for a negative list, which limits to six cost items the VATable goods and services to be imposed on RBEs.
This includes janitorial, security, financial, consultancy, marketing and promotion services, as well as services rendered for administrative operations, such as human resources, legal and accounting.
“PEZA and the ecozone industry laud the President for prompting the concerned agencies to clarify the previous administration’s issuances that limited the grant of incentives to qualified projects/activities of registered business enterprises,” Panga said.
Panga said the revised revenue regulations gives justice to the true intent and spirit of the CREATE law, which is to incentivize qualified investments while instituting fiscal reforms in the investment promotion agencies (IPA) grant of incentives to investors.
“With the restoration of our ecozone export-oriented locators’ incentives, including VAT zero-rating/exemption on goods and services that are directly and exclusively used in their registered activity, this will improve their bottomline and capacity to reinvest in the country,” Panga said.
“As we manage the cost of doing business to enhance our competitiveness, this will also attract new investors in the ecozones to take advantage of the incentives and benefits offered by the CREATE,” he said.
With the RBEs now spared from the VAT refund process, Panga said this would be also benefit their local suppliers who would no longer be required to apply with the BIR for the VAT zero-rating of their transactions.
“The certification issued by IPAs shall be the basis for availing of the VAT zero-rating incentive. This will strengthen the role of IPAs in investment facilitation and exercise of regulatory functions over RBEs,” he added.
“We will continue to collaborate with our partner agencies and industries as we try to restore the incentives for support to export activities and address the remaining industry issues on cost allocation for VATable administrative expenses, conduct of BIR audit, IPAs’ approving authority for projects and policy-making powers, flexi-work scheme for ecozone locators, and protection for existing RBEs pursuant to the sunset provision of the CREATE law,” he said.
Source: https://www.philstar.com/business/2023/05/02/2263008/revised-vat-zero-rating-encourage-local-sourcing