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DOF Chief Reverts Zero-tax Incentive for Exporters With RR 9-2021 Suspension

Posted by on February 19th, 2022

After much concern from the country’s export sector, the Department of Finance (DOF), and the Bureau of Internal Revenue (BIR) have agreed to suspend the latter’s Rules and Regulations (RR) 9-2021 which imposed a 12% value-added tax (VAT) on specified exporter transactions that were previously subjected to 0%.

The suspension came after further discussions were held among members of the House Ways and Means Committee of the House of Representatives (Congress) along with concerned national government agencies and stakeholders last July 21. Committee Chairman and Albay Representative Joey Salceda met with BIR officials and DOF Secretary Carlos Dominguez III prior to the meeting wherein the Secretary conveyed his intention to suspend the RR before proceeding to draft corrective measures through legislation. 

The move gave export businesses within the Philippine Economic Zone Authority (PEZA) among other local economic zones some needed leverage to rebound from the effects of the global pandemic to local export businesses.

RR 9-2021 was greenlit last June 11 upon meeting the conditions set by Republic Act (RA) No. 10963 or the Tax  Reform and Acceleration and Inclusion Act (TRAIN) law, which are the successful establishment and implementation of an enhanced VAT refund system, and the full cash payment on December 31, 2019 of all pending VAT refund claims as of December 31, 2017

The Revenue Regulation imposed the 12% value added tax for the following export transactions:

  • Sale of raw materials or packaging materials to a non-resident buyer for delivery to a local export-oriented enterprise;
  • Sale of raw materials or packaging materials to export-oriented enterprises whose export sales exceed 70 percent of total annual production;
  • Those considered export sales under Executive Order (EO) No. 226, or the Omnibus Investment Code of 1987, and other special laws (Section 106 (A) (2) (a) (5) of the Tax Code, as amended);
  • Processing, manufacturing, or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported; and
  • Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceed 70 percent of total annual production. 

With the suspension of the revenue regulation, the said export transactions will be reverted to zero-rated status on local purchases of goods and services that were stated as direct and exclusive necessities in their registered projects or activities. 

The same is also in accordance with the Corporate Recovery and Tax Incentives for Enterprises (CREATE) law, specifically with its provisions on easing exporter operations, enhancing national export competitiveness, and pushing for local supplier sourcing.  

With continuing administrative talks, small and medium export enterprises can look forward to more efficient refund and audit systems in the near future. Rep. Salceda had also stated his proposal to streamline tax processes for small de minimis claims, complementing the DOF’s intent to work with the Executive branch in drafting the necessary corrective legislation before the RR’s reimplementation.

To date, no official memorandum has been issued by the DOF or the BIR yet.