The Philippines ends VAT exemptions on goods for export

The Philippines has introduced a VAT rate of 12% on certain goods sold to exporters that were previously VAT exempt. 

According to the new regulations, 12% VAT will apply on raw materials and packaging material sold to export-oriented companies, under defined conditions. These include the sale of such goods for delivery to a local export-oriented enterprise. The sale of raw materials or packaging materials to local companies which have export sales exceeding 70% of their total annual production are also included. 

Previously, these transactions were zero rated.

What about existing VAT incentives?

The new regulations are fairly detailed and complex. Among the remaining questions is precisely to what extent VAT now applies to export-oriented companies operating in special economic zones or otherwise previously exempt from VAT.

The Philippine Economic Zone Authority (PEZA) has written to the government seeking clarification on the implications of the new regulations.  

Exporters and distributors in the Philippines should seek expert advice from a VAT specialist if they have any doubts about their specific VAT liability. 

Broad tax reforms 

The new VAT regulations, RR No. 9-2021, comprise part of a larger framework of tax reforms, the Tax Reform for Acceleration and Inclusion (TRAIN) Law.

The TRAIN law was designed to promote economic growth and encourage foreign investment. It also aims to make the tax system fairer and more efficient. However, some critics say the framework could increase the burden on low income earners.

Adapt to changing VAT regulations

VAT regulations constantly change, either due to external conditions (as with global Covid-related VAT reductions) or because of shifts in broader tax and macroeconomic policy. 

For exporters, it’s especially important to understand how shifting VAT regulations can affect the costs of producing and trading goods. Exporters also need flexible strategies to rapidly adapt as VAT regulations change.

VAT IT’s specialist team is on hand to maximise VAT reclaim opportunities, enhance your cash flow and advise on the most efficient VAT strategies for traders and manufacturers. Get in touch with VAT IT to develop a more resilient VAT strategy especially suited to your business.