Export group nixes VAT exemption as tax perk

MANILA, Philippines — The Philippine Exporters Confederation Inc. (Philexport) has expressed opposition against the classification of value added tax (VAT) exemption as a tax incentive under the second package of the tax reform program, saying this will make exports uncompetitive. 

In a position paper submitted to the Department of Finance, Philexport aired the group’s reservations over the incentives reform portion of the draft “Corporate Income Tax and Incentives Reform Act,” noting that the zero VAT exemption and VAT refunds should not be categorized as tax incentives.

 “VAT refunds are not fiscal incentives, but just a necessary operation of the Cross Border Doctrine internationally recognized which states that no VAT shall form part of the cost of goods and services destined for consumption outside of the terminal territory of the taxing authority,” the group said.

Philexport said this doctrine is followed by economies in the Association of Southeast Asian Nations. 

Unburdened by input taxes, other ASEAN exporters will have lower export prices compared to Philippine exporters, which will have to pay additional VAT under the proposed corporate tax law, Philexport said. 

 “The additional VAT will make our products and services more expensive than they already are,” it said.

 Philexport president Sergio Ortiz-Luis Jr. and trustee Oscar Barrera, joint signatories to the position paper, recommended instead that “any and all exports are to be given zero VAT exemption on their export products and services, and be given input VAT refunds when [the] new refund system is in place.” 

According to Philexport, an enhanced VAT refund system must be established to grant refunds of creditable input tax within 90 days of VAT refund application under the Tax Reform for Acceleration and Inclusion or TRAIN.

 If the VAT refund is removed, the group said the competitiveness of exporting micro, small, and medium-sized enterprises will be compromised, leading to “loss of jobs and livelihoods particularly in the countryside.”

Philexport said incentives should be provided on “a need basis to improve performance rather than for a reward for good performance.”

“We therefore object to the proposal to classify exporters to whether they have a performance record of three years and having exported 90 percent over past three years,” the group said. 

“This is anti-development, anti-MSMEs, as it rewards those who already succeeded in competition to grow even bigger, exacerbating the growing gap between rich and poor sectors of the economy,” it added.