Business groups urge gov’t to resolve issue on VAT zero-rating

THE FAILURE of the government to resolve the value-added tax (VAT) zero-rating issue will have a detrimental impact on the growth of key export sectors such as information technology and business process management, electronics, and garments, according to business groups.
The IT and Business Process Association of the Philippines, Inc., Semiconductor and Electronics Industries in the Philippines Foundation, Inc., and Confederation Wearables Exporters of the Philippines said they are awaiting the Fiscal Incentives Review Board’s resolution of the VAT zero-rating issue by the end of the month.
“The inability to address this serious and pressing matter by the end of March will have detrimental effects to these three sectors particularly in sustaining their growth potential,” they said. 
The issue stems from the Corporate Recovery and Tax Incentives for Enterprises Act, which took effect on April 11, 2021. The law required registered business enterprises to prove local purchases of goods and services directly and exclusively used in their registered activities to be given a VAT zero-rating. Otherwise, the purchase of such goods would be subject to 12% VAT.
“As exporters, these three industries have claimed VAT zero-rating on their purchases consistent with existing local regulations and globally accepted principles allowing for the sectors to remain competitive,” they said.
However, the conflicting provisions related to the VAT zero-rating of local purchases created confusion among exporters.
“The understanding of the sectors is that most of the government agencies involved in resolving the issue believe that there is clear basis for all purchases of exporters to be without the 12% VAT, given that this is not only allowed by the rules but is more importantly critical in ensuring that the prices at which the services and goods offered are able to remain competitive in the international market,” the groups said.
The business groups said that investment promotion agencies such as the Philippine Economic Zone Authority, Board of Investments, among others, should determine and endorse list of goods and services eligible for VAT zero-rating purchased by exporters from local suppliers.
They warned that a failure to address the VAT issue may also have a “crippling consequence on the parts localization initiatives of exporters,” which will also affect local suppliers.
The electronics/semiconductors, and garments/wearables export sectors generated $83 billion worth of exports, accounting for 69% of the country’s total goods and services exports. These sectors contributed 20% to the Philippines’ gross domestic product (GDP) in 2022. It accounted for 2.5 million direct jobs, and 6.75 million indirect jobs.
“Their ability to further contribute to the country’s GDP and reach their potential to provide employment to millions more Filipinos depend so much on having clear and consistent government policies and regulations,” they said. — RMDO