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Amended VAT zero-rating rules to boost exporters’ local purchases

LIMA central business district is LIMA Estate’s 30-hectare commercial area in Batangas.

THE amended guidelines for value-added tax (VAT) zero-rating by economic zone locators could boost purchasing by exporters from local suppliers, the Philippine Economic Zone Authority (PEZA) said.

“With the revised guidelines, this will encourage the locators to localize their sourcing 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 economic zone (ecozone) value chain,” PEZA Director General Tereso O. Panga told reporters via Viber on Monday.

Mr. Panga added that the amended guidelines show that the government is “serious” in implementing the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act and attracting foreign direct investment.  

“Overall, this will be a big boost to the investment promotion agencies’ (IPAs) mandate and for the country as a competitive investment destination in the region,” Mr. Panga said.

The Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 3-2023, which amended the VAT zero-rating guidelines.

RR No. 3-2023, allows local suppliers of goods and services to registered export enterprises to forego BIR approval for VAT zero-rating of items they provide to locators. Instead, their VAT zero-rating may be claimed on the strength of certifications to be issued by IPAs such as PEZA.  

The CREATE Act previously required business enterprises to prove that the local purchases of goods and services are directly and exclusively used in their registered activities in order to enjoy the VAT zero-rating. Otherwise, these would be subject to 12% VAT.

Mr. Panga said that locators faced higher costs prior to the BIR issuance due to the limited goods and services covered under the VAT zero-rating incentive.

“This prompted some locators 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 definitions for direct and exclusive use in a registered activity,” Mr. Panga said.

The BIR regulation also specified six items that cannot be deemed directly or exclusively used in the registered project or the registered export enterprise, to encourage more sourcing from domestic suppliers.

These are janitorial services, security services, financial services, consultancy services, marketing promotion, and services rendered for administrative operations such as human resources, legal, and accounting. — Revin Mikhael D. Ochave

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