The Bureau of Internal Revenue is reviewing a rule to address the Japanese government’s concern about the inclusion of a 5- percent final value-added tax (VAT) in the billing of contractors of official development assistance (ODA)-funded projects, Finance Secretary Carlos G. Dominguez III said.
The present agreement with Japan provides that ODA loans should not be used to pay any taxes, according to the Department of Finance.
“The BIR is now revising regulations on the VAT withholding system involving projects funded by Japan’s Overseas Economic Cooperation Fund (OECF), taking into account the concerns raised by the Japanese government and contractors of OECF-funded projects,” Dominguez said in a statement.
“I have also instructed our Commissioner of Internal Revenue to prioritize the resolution of the issues on VAT on Japanese contractors undertaking ODA projects,” Dominguez added, referring to BIR chief Caesar R. Dulay.
In August last year, then BIR chief Kim S. Jacinto-Henares issued Revenue Memorandum Circular No. 45-2015, which upheld the application and validity of Republic Act No. 9337 for government payments under OECF-funded projects.
Citing an earlier exchange of notes between the governments of the Philippines and Japan, Henares had said the Philippine government would assume the final withholding VAT worth 5 percent of the gross payment. This is to be paid out of gov ernment coffers or by pertinent agencies as a final settlement of the tax due on the income received by Japanese contractors.
As such, Japanese contractors of OECF-funded projects were not allowed to include in their billings the entire 12-percent VAT to be assumed by the Philippine government.
With the removal of investment restrictions as well as further easing the way of doing business in the country underway, Dominguez urged Japanese businesses at a recent forum in Tokyo to invest in the Philippines.
“This is a fine time for looking at the Philippine economy as an investment destination,” Dominguez told the Philippine Economic Forum held on the sidelines of President Duterte’s state visit to Japan this week.
For one, “the new administration has taken initial steps to stamp out corruption, cut red tape in the bureaucracy, and simplify tariff rules in order to entice investors from Japan and elsewhere to set up shop in the Philippines,” the Finance chief said.
“The opportunities are many and the possibilities are large. The Philippines is an economy that is finally ready for more regionalization,” Dominguez added.
“The bilateral relations between Japan and the Philippines has deepened and we look forward to more intensive cooperation. We look to investment inflows from Japan especially those that will support strategic investments in the infrastructure and industry,” according to Dominguez.
Specifically, Dominguez used Japanese businessmen to consider public-private partnership (PPP) projects as well as tap opportunities in the banking, energy, tourism and transportation sectors.
“There are numerous investment possibilities open to our regional partners. We have expanded our public-partnership program to include unsolicited proposals from potential investors. The energy and transport sectors are key areas needing more investments. Our banks are seeking new partners. Our primary industries are open to joint ventures,” he said.
Two-trade and tourism were also rosy for both the Philippines and Japan, according to the Finance chief. —Ben O. de Vera