Spooked by VAT issue

At least P33-billion worth of potential investments from expanding major electronics manufacturers in the country, and a steel producer project are at risk of getting shifted to other countries following unmet expectations from the CREATE Law, particularly the imposition of  value added tax (VAT) on exporters’ local purchases and on indirect exports.

The Philippine Economic Zone Authority (PEZA) Management has identified these potential expansion projects by Amkor worth P16 billion, and Europe’s home appliance manufacturing giant Dyson with P6 billion. Both electronics firms are existing registered enterprises with PEZA and are among the country’s biggest exporters. A Swiss firm TE is also mulling a huge investment in the country.

The other big investor is a Chinese-owned Panhua Integrated Steel, which has been planning to register with PEZA even prior to the pandemic in 2020.

These firms are still studying other country options depending on the VAT issue and other incentives issue under the CREATE Law that affect profit and production.

PEZA Director General Charito “Ching” Plaza

Aside from these manufacturers firms, there are also expansion plans by ecozone developers, which are also in discussion with the PEZA for their registration.

As this developed, the PEZA Board has already passed a resolution supporting the PEZA Management and its investors in their position that the Bureau of Internal Revenue suspend the implementation of Revenue Regulation 9-2021, which took effect last June 27, 2021, in consideration of the pandemic as foreign and domestic enterprises are still struggling to survive and keep the jobs and operations to continue. The RR implements the 12 percent VAT on local purchases of PEZA-registered enterprises and their indirect exports.

The PEZA Management said that the imposition of the VAT is untimely and inconsistent because the government has extended business assistance and relief to investors to continue operations and even included the COVID-19 related expenses to be deductible to their 5 percent gross income earned (GIE).

PEZA Director General Charito B. Plaza noted that it would be a big waste if the government “cannot sustain the trust, confidence and the tax incentives and ease of doing business support they’ve been enjoying with PEZA and the sustainability of their investments they’re hoping can be provided under CREATE.”

PEZA is expected to meet these companies to discuss their plans and expectations from the government. The agency, which administers export-oriented enterprises, is also expected to be recommending to the Fiscal Incentives Review Board (FIRB) big ticket industries in every Tier under the CREATE Law for incentive purposes.

“They have high expectations under CREATE, but are now thinking twice if the VAT issue cannot be resolved,” said Plaza.

Originally, export companies registered with PEZA are exempted from the VAT payments on their purchases of local supplies, and  raw materials from domestic enterprises, farmers, and small and medium enterprises because of the “ separate customs territory “ provision in the PEZA law.

This way, Plaza said, ecozone locators no longer import their supplies needed in their production, thus, benefiting the country.

Already, some industry associations earlier said they would seek court redress stating this additional tax will certainly affect their viability at this time of economic recession.

Based on official data, the BIR could collect a higher tax haul once the VAT is collected based on RR 9-2021. In 2020 alone, PEZA- registered enterprises’ total domestic purchases reached P280.922 billion. If that amount had been imposed the 12 percent, the government should have collected P33.710 billion VAT, data showed.

On top of the VAT on their local purchases, the BIR is also set to collect VAT on the indirect exports (PEZA to PEZA) and constructive exportation/inter-zone sales between locators. In 2020, combined PEZA indirect exports reached $8.881 billion.

“We have to minimize if not eradicate our being import and consumption-dependent, but become a production, manufacturing, and export-driven economy ,self-reliant, self-sustaining and resource generating nation as we’re blessed with rich natural and human resources, the main reasons why investors are attracted to our country,” she explained.

“But, because we’re competing with other countries, we must think global and act local by aiming to be a contributor to the global supply chain and be globally competitive by addressing the efficiency factors such as tax incentives package, supply chain, logistics and transportation hubs, low power and utilities rates, etc. Our overall aim is how to lower the cost of doing business and enhance the ease of doing business to attract world investors,” said Plaza.

Source: Manila Bulletin (https://mb.com.ph/2021/07/12/p33-b-expansion-projects-on-hold/?utm_source=rss&utm_medium=rss&utm_campaign=p33-b-expansion-projects-on-hold)