As the compliance framework in the Philippines is constantly in flux, all PH businesses must remain updated on their corporate tax and compliance obligations on a regular basis!
Changes in June 2021 to the VAT framework in the Philippines impacted businesses across the export industry. However, more recent changes in late July 2021 must now also be considered by PH businesses!
Below, we have examined the background to the imposition of the new VAT-related requirements. We also explore the most recent changes by the BIR and what it means for the application of VAT on certain export transactions in the Philippines!
In June 2021, the BIR released Revenue Regulation No. 09-2021. This Revenue Regulation, or RR, was dated and signed on 9 June, 2021, stamped by the BIR on 11 June 2021 and published in the Philippine Star on 12 June 2021. RR. No. 09-2021 was stated as being effective 15 days after publication in leading newspapers in general circulation in the Philippines.
The purpose of RR No. 09-2021 was to impose a 12% VAT rate on a range of financial transactions which had previously been subject to a zero-rate of VAT under various provisions of, and amendments to, the Tax Code of 1997 (as amended).
The reason why RR No. 09-2021 was issued was to implement certain provisions of Republic Act (RA) No. 10963, also known as the TRAIN law (Tax Reform and Acceleration and Inclusion Act).
The TRAIN law legislated for the imposition of 12% VAT on certain export transactions provided that a number of conditions had been fulfilled under the existing PH tax and VAT framework.
According to the BIR, those conditions have now been fulfilled!
RR No. 09-2021 provides that the imposition of the 12% VAT on certain transactions is now being implemented “after satisfaction of the conditions set forth in the TRAIN law”.
Which Transactions Were Impacted by Revenue Regulations No. 09-2021?
As mentioned above, RR No. 09-2021 imposed a 12% VAT rate on a range of transactions which, prior to RR. No. 09-2021, had been classified as zero-rated transactions for the purposes of VAT.
The transactions under RR. No. 09-2021, which are designated as being subject to a 12% VAT rate include those transactions that are listed as being zero-rated transactions under Section 106(A)(2)(a)(3), (4) and (5) and Section 108(B)(1) and (5) of the Tax Code of 1997 (amended).
The type of transactions impacted were divided under the following headings and categories under RR. No. 09-2021:
- Sales of Goods and Properties; and
- Sales of Services and Use or Lease of Properties
As such, RR. 09-2021 provides that the following transactions, which were previously VAT zero-rated, would now be subject to 12% VAT:
Sales of Goods and Properties
- “The sale of raw materials or packaging materials to a non-resident buyer for delivery to a resident local export-oriented enterprise to be used in manufacturing, processing, packing or repacking in the Philippines of the said buyer’s goods and paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP) – (Sec. 106(A)(2)(a)(3);
- The sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed 70% of total annual production -Sec. 106(A)(2)(a)(4); and
- Those transactions considered export sales under Executive Order No. 226, otherwise known as the Omnibus Investments Code of 1987, and other special laws – Sec. 106(A)(2)(a)(5).“
Sales of Services and Use of Lease of Properties
The sale of services and use or lease of properties under subparagraphs (1) and (5) of Section 108(B) of the Tax Code of 1997, as amended:
- “The processing, manufacturing or repacking off goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP – Sec. 108(B)(1); and
- Services performed by subcontractors and/or contractors in processing, converting or manufacturing goods for an enterprise whose export sales exceed 70% of the total annual production – Sec. 108(B)(5).“
What is the Impact of Revenue Regulations No. 15-2021?
The publication of RR. 09-2021 caused many businesses in the Philippines to re-evaluate their activities, review their internal practices and budgets in order to ensure they were making adequate provision for the imposition of the new VAT requirements.
As noted above, the new VAT requirements would impact companies involved in the export of goods or services. In particular, companies registered in Special Economic Zones, such as PEZA, would be impacted.
However – at the end of July 2021, there was another twist in the story!
Revenue Regulation No. 15-2021 is dated 12 July 2021, was signed by the Secretary of Finance on 27 July 2021 and stamped by the BIR on 28 July 2021.
RR. No. 15-2021, which took effect immediately upon publication, provides that the imposition of the 12% VAT rate on certain export transactions, as outlined in RR. 09-2021, has now been deferred!
As such, all of the transactions referenced above will transition back to being zero-VAT rated until further notice.
What is the Reason for the Deferment of this New VAT Requirement?
The explanation contained in RR. No.15-2021 for the deferment of the imposition of the 12% VAT rate is short. However, it appears to be an effort to ease the burden of change on the export industry during COVID-19.
RR. No.15-2021 provides that the imposition of Revenue Regulations No. 09 – 2021 has been deferred “in view of the continuing COVID-19 pandemic and its impact on the export industry”.
How Long Will The Deferment of the 12% VAT Rate Last?
The time period for the deferment is uncertain.
RR. No. 15-2021 does not provide specific timelines.
However, under RR. No. 15-2021, Revenue Regulations No. 9-2021 and the will be deferred “until the issuance of an amendatory revenue regulations”.
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