The Bureau of Internal Revenue (BIR) has released the draft amendatory regulation that will allow exporters to continue to avail of zero tax rating on their local purchases as the agency invited concerned stakeholders to give feedback.

The proposed regulation that will exempt raw materials sold by local manufacturers to eligible export companies from the 12% value added tax (VAT) was presented by BIR officials in an August 25 online public consultation.

The draft ruling amends certain provisions of Revenue Regulations (RR) No. 9-2021, whose implementation BIR suspended late last month to make way for amendments. RR 9-2021, dated June 9, 2021, took effect last June 27 and implemented the 12% VAT on indirect exports and sale of services previously taxed 0% VAT.

The suspension of the RR implementation followed vehement objections from exporters and their domestic suppliers, who said the imposition of the 12% VAT would be the death knell for the pandemic-hit industry.

The Philippine Exporters Confederation, Inc. (PHILEXPORT) has welcomed the issuance of the proposed regulation, which it will study and comment on.

The umbrella group of exporters last month thanked BIR and the Department of Finance for suspending the enforcement of RR 9-2021 following a hearing facilitated by the House Ways and Means Committee and attended by PHILEXPORT and other concerned stakeholder groups and government agencies.

PHILEXPORT has long opposed the removal of the zero rating for indirect exports, pointing out that this would hurt the entire export community and the local industries the Department of Trade and Industry is trying to develop and strengthen.

To recall, the trade group was at the forefront of the pushback against the 12% VAT on export inputs/local purchases and actively sought the suspension of RR 9-2021,

On June 22, PHILEXPORT president Sergio Ortiz-Luis, Jr. wrote BIR Commissioner Cesar Dulay to relay cash-strapped companies’ apprehension that filing for VAT refunds would eat into their limited time and finances.

He then wrote a letter on July 1 to Finance Secretary Carlos Dominguez III after the implementation of RR 9-2021, appealing for its immediate suspension and noting the rule was “already significantly hurting the export industry.”

And last July 16, PHILEXPORT organized an online meeting with DOF Undersecretary Antonette Tionko to convey the serious damage that RR 9-2021 would inflict on various industries. Tionko assured business leaders and stakeholders that all of their concerns would be raised to the finance secretary.

With the new draft RR, BIR is working on returning the VAT zero-rating on the local purchases of raw materials by exporters.

Larry M. Barcelo, BIR assistant commissioner for legal service, said during the August 25 consultation that the VAT zero rating under the CREATE Act now includes the sale of raw materials, inventories, supplies, equipment, goods and services to a registered export enterprise, to be used directly and exclusively in its registered project or activity pursuant to the CREATE Act.

Barcelo added that “direct and exclusive use in the registered project or activity” refers to raw materials, inventories, supplies, equipment, goods, services and other expenditures necessary for the registered project or activity, without which the registered product or activity cannot be carried out.

And to avail of the VAT zero rating, the seller should be a VAT-registered supplier, whether a registered business enterprise or not, and the buyer or purchaser should be a registered export enterprise, he continued.

The VAT zero-rating under the CREATE Act now governs and applies to the local purchases of goods and services of an export enterprise registered with or to be registered with the investment promotion agency (IPA) under the CREATE, said Barcelo.

It also now applies to an existing registered export enterprise that will continue to avail of its existing tax incentives prior to the effectivity of the CREATE Act.

The local purchases must be used actually and directly in their registered project or activity during the period of its registration with the IPA, he said.

Once signed, the draft regulation is expected to resolve the conflict between the provisions of RR 9-2021 and CREATE.