Exporters get VAT exemption on local purchases

MANILA, Philippines — Registered export enterprises will no longer pay value-added tax (VAT) for goods and services they purchase from domestic suppliers under a new order issued by the Bureau of Internal Revenue (BIR).

Under Revenue Regulation (RR) 21-2021, exporters were given VAT exemption for the goods and properties  that they buy, provided they will directly and exclusively use them for their business activities, in line with provisions of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.

The VAT privilege covers the sale of raw materials, inventories, supplies, equipment, packaging materials and goods, and can be maximized for up to 17 years.

Likewise, the RR extends the VAT exemption to services that exporters acquire for the direct and exclusive use of their activities. The tax incentive covers provision of basic infrastructure, utilities and maintenance, repair and overhaul of equipment, also lasting for up to 17 years.

Under the CREATE Act, exporters are given the VAT exemption for the importation and local purchase of goods and services that they need for their operations. The tax perk will last for a maximum of 17 years, unless extended under the Strategic Investment Priority Plan (SIPP).

The SIPP contains a list of industries that will receive fiscal and non-fiscal incentives as part of the government’s desire to speed up their development.

As mandated by the law, exporters can only secure the VAT exemption on domestic purchases upon the endorsement of their concerned investment promotion agency and through the filing of required documents.

The VAT privilege covers local purchases made by exporters in the third quarter of taxable year 2021 and onward, according to the RR.

RR 21-2021 also supersedes RR 9-2021 issued by the BIR in June. Under RR 9-2021, the BIR removed the VAT exemption on certain transactions considered as export sale, such as the sale of raw or packaging materials to firms that sell 70 percent of their output abroad.

Further, RR 9-2021 slapped a 12 percent VAT on the sale of services and lease of properties like work performed by
subcontractors and contractors for exporters whose export sales exceed 70 percent of their production. As such, the BIR order received opposition from industry groups.

In response, the BIR in July released RR 15-2021 suspending the enforcement of RR 9-2021 in light of the pandemic’s impact on the export sector.