THE Philippine Exporters Confederation Inc. (PhilExport) has petitioned the government not to fiddle around with the zero value-added tax (VAT) exemption, which applies to both indirect and direct exporters.
The Department of Finance (DoF) is proposing to keep the zero VAT rate only for direct exporters.
In a position paper dated February 1, PhilExport said it supports the move to reform Philippine tax policies and administration for greater compliance and revenue collection and give the government enough funds to efficiently and sufficiently deliver public services.
However, it does not subscribe to the proposal to remove the zero VAT exemption for indirect exporters and called for a “status quo” on the zero VAT exemption covering indirect exporters that supply direct exporters with materials and services.
PhilExport believes that taking away the zero VAT privilege from indirect exporters will hurt the export community, is not the solution to the DoF’s issue on tax leaks supposedly from indirect exporters who allegedly reuse zero VAT certificates many times over.
The DoF should instead “set up the Track-and-Trace System to identify legitimate transactions that qualify as zero-rated VAT,” according to PhilExport.
The system takes note and registered qualified transactions for zero-rating, the group noted. “Each transaction is uniquely identified, goes through an approval process and then canceled when products are finally exported.”
The Track-and-Trace System is consistent with mandating e-receipts, it added.
PhilExport said zero rating for exports is “an international practice and is not really an incentive.” At the same time, it gives exporters a competitive edge in pricing as exports do not carry the cost of VAT.
“Imposing non-zero rated VAT on local inputs would increase costs from 3 percent to 8 percent, depending on the amount of local raw materials and services in the products,” the trade association said.
The zero VAT rating eases the cash flow of direct exporters, as they do not have to “advance” VAT payments locally sourced raw materials and services. It also encourages exporters to buy from domestic suppliers, increasing local trade, creating inclusive growth and expanding the value-added of local industries, PhilExport noted.