Zero VAT on sales to PEZA firms to stay

The sale of goods and services to Philippine Economic Zone Authority (PEZA) entities will remain subject to zero percent value added tax, clearing a confusion over President Duterte’s line veto of zero VAT rating on the sale of goods and services to separate customs territories under the TRAIN Law.

The Philippine Exporters Confederation Inc. (Philexport) said PEZA issued a memorandum circular last month to reiterate that there is “status quo on the VAT zero-rating incentive on sales of goods/ services to customs territory.”

The circular dated March 12 was addressed to all zone administrators and managers as well as PEZA-registered enterprises, according to the export group.

Philexport said the circular was issued after the Department of Finance (DOF) cleared up confusion over the impact of the TRAIN Law on the zero rating of sales of goods and services to PEZA locators.

The DOF has informed PEZA that the TRAIN Law does not affect the current zero rating of sales of good and services to PEZA locators.

“The veto on certain provisions of the TRAIN Law, specifically the provision on the zero-rating of sales of goods/ service to separate customs territory has caused uncertain- ties and serious concern on the part of PEZA locators. With some local suppliers already incorporating the VAT in their sales of goods/services to ecozone customers. PEZA sought clarification from the Department of Finance as to whether the said veto applies to PEZA locators,” the memorandum circular stated.

“Accordingly, Section 8 of Republic Act 7916, otherwise known as the Special Economic Zone Act of 1995, which provides that special economic zones are to be operated and managed as separate customs territory, has not been amended or repealed by the TRAIN Law,” it said.

PEZA said “the VAT zero rating incentive being enjoyed by PEZA locators shall remain in full force and effect” until a law or revenue regulation is passed or issued amending these provisions.

Philexport said this means suppliers to PEZA entities could continue to apply zero percent VAT on their qualified sales, subject to presentation of the PEZA certificate of VAT zero rating valid for the period.

PEZA entities, on the other hand, should secure their VAT zero rating certificates from PEZA and furnish a copy to their suppliers, the group added.

Philexport is among the groups which have pushed for the zero VAT exemption for indirect exporters to be retained.

PEZA director general Charito Plaza had warned of as much as P250 billion in annual losses to local suppliers of export-oriented firms should the zero VAT exemption be removed, saying that its removal would likely push its locator industries to just import everything because importation is cheaper, instead of buying from local suppliers.