THE RESOLUTION of the issue on value-added tax (VAT) zero-rating for local purchases made by exporters will be out before the end of April, Finance Secretary Benjamin E. Diokno said.

“With the recommendation of the Fiscal Incentives and Review Board (FIRB) technical working group, the Bureau of Internal Revenue (BIR) has drafted the necessary revenue regulations to clarify the coverage of the direct and exclusive use for purposes of VAT zero-rating. I have approved and signed the same. This is expected to be issued shortly within the month of April,” Mr. Diokno said in a Viber message.

Key export sectoral groups urged FIRB to resolve the conflicting provisions in the VAT zero-rating guidelines before the end of March.

The IT and Business Process Association of the Philippines, Inc., Semiconductor and Electronics Industries in the Philippines Foundation, Inc. and Confederation of Wearables Exporters of the Philippines (CONWEP) have said that failure to address the issue would have “detrimental effects to these three sectors particularly in sustaining their growth potential.”

The issue on VAT zero-rating stems from the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act.

Under the CREATE Act, business enterprises are required to prove that the local purchases of goods and services are directly and exclusively used in their registered activities in order to avail themselves of the VAT zero-rating.

Prior to the CREATE Act, local purchases by enterprises registered with and located in economic and freeport zones were entitled to VAT zero-rating.

The CREATE Act also rendered the cross-border doctrine ineffectual and inoperative. The cross-border doctrine mandates that no VAT shall be imposed to form part of the cost of goods destined for consumption outside the territorial border of the taxing authority. Under the doctrine, the actual export of goods and services from the Philippines to a foreign country is VAT-free.

To address the conflicting provisions, the government had to amend the CREATE Act’s implementing rules and regulations and issue circulars.

CONWEP Executive Director Maritess J. Agoncillo said exporters want the cross-border doctrine restored.

“We’re hopeful that our recommendation will be taken with great consideration by the FIRB to enable us to sustain our current investments in the country,” she said in a phone call. “Any major deviation from our requests can have adverse impacts and consequences on our current investment portfolio.”

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said in a Viber message that the VAT zero-rating resolution will provide “greater certainty” for exporters.

“Clarity on this would be important to be consistent with other incentives such as the CREATE law and other tax reform measures to help attract more investments into the country to be more competitive and catch up with other countries in Asia,” he added. — Luisa Maria Jacinta C. Jocson