Peza: Higher imports in 2017 seen as hedge vs tax on local supplies

Imports made by Peza-registered companies grew to more than P2 trillion last year partly because of worries that the Philippine administration might start charging more for local purchases, a top official said.

Data from the Philippine Economic Zone Authority (Peza) showed that the imports ordered by Peza-registered firms reached $39.18 billion (more than P2 trillion) in 2017, which is a 27-percent increase from the $30.895 billion (over P1.6 trillion) reached in 2016.

In a recent press briefing, Peza Director General Charito Plaza said the TRAIN law’s plan to remove the zero-rated value-added tax (VAT) for certain local transactions “could be” a factor behind the increase in imports.

Perceived threat

Data suggests companies may have been more encouraged to import last year, as opposed to relying on local purchases, given that the latter faced the threat of being made more expensive because of the TRAIN law.

The TRAIN law wants to impose a 12-percent VAT of the gross selling price on certain local transactions once an enhanced tax refund system has been in place.

Prior to TRAIN, local transactions made by Peza-registered firms were subject to zero-rated VAT, a perk which many see as an encouragement to source their supply needs locally.

“If we’re going to impose the 12-percent VAT, our companies would most likely just import everything instead of just buying local. This would be a big loss to our local suppliers,” she said.

Under current rules, Peza-based companies can import their parts and equipment duty-free, which makes it easier for these firms to source their supply requirements abroad instead of depending on local suppliers.

Local transactions

Last year, local transactions made by Peza-registered companies reached only P295.930 billion in 2017, which is 17 percent more than the P253.113 billion worth of purchases made the year before.

While local purchases are small compared to imports, Plaza said the law might further put local suppliers at a disadvantage.

The TRAIN lowers the personal income tax of millions of Filipinos starting this year but imposes measures to compensate for the revenue losses. These measures include a wider VAT base and higher consumption taxes.

Anxieties

Investor anxieties got worse after President Duterte issued a veto last year that drew conflicting interpretations. One of the interpretations was that the government might remove the zero-rated VAT immediately instead of waiting for an improved refund system.

She said, however, that the Department of Finance assured her that the perk would remain, and not be revoked immediately because of the veto.