Local suppliers Of Peza firms threatened by VAT

The Philippine Economic Zone Authority (Peza) said that as much as P24 billion in domestic purchases could be lost every year once the government strips the value added tax (VAT) exemption of local suppliers of Peza-registered firms, warning that companies “might just as well import everything.”

Peza Director General Charito B. Plaza told reporters last week that Peza-registered companies make P24 billion worth of purchases yearly from local suppliers, taking advantage of the VAT exemption granted to domestic suppliers under the current tax code.

However, this perk, which has encouraged investors to look for domestic resources instead of importing materials, would soon be removed under HB 5636 in favor of a 12-percent VAT on gross sales.

House Bill 5636, which was passed in the House of Representatives last month, is the first package under the government’s comprehensive tax reform program, which aims to lower personal income taxes while expanding the base of VAT amidst new or higher taxes on consumption.

“So P24 billion would be lost if we remove the VAT exemption. Locators might just as well import everything because it will be cheaper. This would be a big loss to our local suppliers,” she said.

According to the bill, the sale of raw materials to export-oriented enterprises would be charged with a 12 percent VAT once the government establishes and implements a new and improved VAT refund system that would either approve or reject requests in three months.