Export targets in peril due to higher shipping costs

MANILA, Philippines — The umbrella organization of exporters in the country warns it may now be difficult to meet export targets as the sector faces twin challenges of rising shipping costs and the imposition of the 12 percent value-added tax (VAT) on their local purchases.

“We doubt very much if we can still meet those [targets]. We have too many problems,” Philippine Exporters Confederation Inc. (Philexport) president Sergio Ortiz-Luis Jr. said in a telephone interview.

Last January, the Export Development Council, composed of the government and private sector, lowered the country’s target for total exports for 2022 to $105.3 billion from an earlier goal of $130 billion, taking into account the coronavirus pandemic and weak global demand.

For this year, the country’s total exports are targeted to reach $91.7 billion.

Among the challenges faced by exporters is the high shipping cost.

“It’s a seller’s market. So, the cost is three times or four times, or sometimes even five times the usual if you can get some,” Ortiz-Luis said.

He said advance payments have to be made for the containers if you don’t want to lose them.

Shipping costs have been going up due to several factors which include a surge in global demand given changes in consumption patterns, including growth in e-commerce, shortage of containers, as well as limited operations in export hubs with a COVID-19 outbreak.

As shipping costs have increased, Ortiz-Luis said many exporters are unable to ship their goods.

To help address the high shipping costs, he said exporters are asking the government to make a loan facility available which may be tapped for the advance payment of shipments.

Trade Secretary Ramon Lopez said the government is open to the exporters’ proposal and other measures to assist exporters.

“We will meet them and further enhance the loan facilities for them,” he said.

Another issue exporters are grappling with is the 12 percent VAT imposed on previously VAT zero-rated raw materials and packaging products purchased by exporters from local suppliers under Bureau of Internal Revenue (BIR) Revenue Regulations 9-2021 which took effect last month.

Outsourced services such as processing, manufacturing or repacking of goods to be exported are also subject to the 12 percent VAT.

“Exporters are struggling and can barely survive and then, we have this 12 percent (VAT) which we don’t understand why they have to implement,” Ortiz-Luis said.

While VAT collected would be refunded, he said it is not clear how long that process would take.

“At the moment, we think it should not be imposed…BIR should not implement it unless they are able to fulfill the condition that they are able to put up a system that will make it easy to refund and pay for claims,” he said.

He said the new VAT rule would hurt not just exporters, but also their local suppliers as well.

Semiconductor and Electronics Industries in the Philippines Foundation Inc. (SEIPI) president Dan Lachica said earlier, some of their members are already looking to transfer up to P28 billion worth of orders from domestic suppliers to foreign firms due to the additional cost of the 12 percent VAT.

In addition to revenue loss for local suppliers, he said 50,000 jobs may be put to risk.

Amid concerns raised by Philexport, SEIPI, as well as other groups which include the Information Technology and Business Process Association of the Philippines, Confederation of Wearable Exporters of the Philippines, Pilipino Banana Growers and Exporters Association, and Philippine Ecozones Association on BIR RR 9-2021, a meeting was held between exporters’ groups and officials of the National Economic and Development Authority, Department of Finance (DOF), Department of Trade and Industry, and Philippine Economic Zone Authority (PEZA) last Friday.

“Industries expressed their concerns with the RR and recommended repeal, if not suspension, until issues are resolved. DOF will take inputs and discuss with (Finance) Secretary (Carlos) Dominguez,” Lachica said in a Viber message.

PEZA director general Charito Plaza said the investment promotion agency also conveyed its position and request to the DOF during the meeting to defer the implementation of the RR as exporters continue to struggle with the effects of the pandemic.

She said the PEZA also called for a reassessment of the impact on exporters and possible job losses.

Ortiz-Luis said exporters are hopeful the implementation of the RR would be reconsidered.

“Many will lose their jobs. Many will close shop,” he said.