Peza: P250-B local sales in peril if tax perk scrapped

The head of the Philippine Economic Zone Authority (Peza) said as much as P250 billion worth of domestic supply purchases could be lost each year if the government insists on removing the value added tax (VAT) exemption currently granted to certain local purchases.

Peza Director General Charito B. Plaza said Peza-accredited locators make an annual purchase of local supplies worth P250 billion, a gain made possible by the VAT exemption granted to domestic suppliers of export-oriented firms under the current Tax Code.

However, this perk would soon be removed under the Tax Reform for Acceleration and Inclusion (TRAIN) bill or House Bill 5636 in favor of a 12-percent VAT on gross sales. The government aims to broaden the VAT base in an effort to get more revenues while lowering the personal income tax.

Earlier in June, Plaza told reporters that companies located in Peza’s economic zones buy P24 billion worth of local supplies yearly.

Now pegged at P250 billion, the revised figure shows that a much bigger economic cost is at stake under the first package of the Duterte administration’s comprehensive tax reform program.

“If they will decide to import everything instead— P250 billion, not P24 billion—will be lost in local supply purchases,” she told reporters in an interview last week.

The looming added VAT on purchases also comes amid higher export sales in the first four months of the year, Peza data showed. From January to April this year, Peza-accredited firms exported $16.47 billion from $14.5 billion in the same period last year, or an increase of 13.57 percent.

The removal of the VAT perk is conditional. Under the bill, the sale of raw materials would only 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.

With the bill having passed muster at the House of Representatives in late May, Peza is now asking the Senate to spare the VAT exemption, which has long been enjoyed by many of Peza’s over 3,000 locators.