LOCAL suppliers may lose billions of pesos a year should the government remove the value-added tax (VAT) exemptions for local purchases, Philippine Economic Zone Authority (PEZA) Director General Charito Plaza said over the weekend.
Citing the first package of the comprehensive tax reform program earlier approved by the House of Representatives, Plaza said the ecozones will appeal to Senate.
“In the Hversion, they removed the VAT exemption for local purchases. So we have 12 percent, but it will be refunded within 90 days. Based on our computation, if we remove the VAT exemption and impose the 12 percent consumption, P24 billion in annual purchases of local supplies will be lost,” she said.
Locators might import everything, because importation is cheaper. This will be a big loss to our local suppliers, Plaza added.
The tax incentives attracted investors to the PEZA, and now it would be discontinued, Plaza said.
“We will not oppose, but we will appeal at the Senate for their consideration. They should be more focused on efficient tax collection—the number one priority—and then whatever incentives we give, especially to our foreign investments should be retained,” she said.
PEZA is also considering indirect exporters or domestic manufacturers that supply the requirements of direct exporters to be registered with PEZA and locate in ecozones.
These firms are entitled to a 5 percent tax on gross income and zero-VAT on imported capital equipment, but are not entitled to an income tax holiday.
Unlike most government-owned and -controlled corporations, PEZA does not get its budget from the national government, but pays its annual 30 percent corporate income tax and VAT.
Ironically, this means that while PEZA gives corporate income tax incentives and VAT zero rate to its locator enterprises, it gets no tax incentives at all, Plaza said.
However, the VAT exemptions that account for the government’s biggest annual losses involve cooperatives, housing and special economic zones, according to the Finance department.
In May, the House approved on final reading the administration’s tax reform package which seeks to lower personal income tax, while raising the excise tax on oil and vehicles, expanding the VAT base, and imposing tax on sweetened beverage and lotto winnings.