Forgone VAT revenues hit P283 billion in 2019

MANILA, Philippines — As industry groups clamor to regain their VAT exemption on local purchases, the Department of Finance (DOF) has reported that the government lost nearly P283 billion in revenue from extending the tax perk to exporters.

The DOF yesterday said forgone revenues from the grant of fiscal incentives declined by more than seven percent to P481.7 billion in 2019 from P518.7 billion in 2018.

Exemptions from the payment of VAT to exporters and cooperatives accounted for roughly 59 percent at P283.45 billion.

The Bureau of Internal Revenue, complying with the provisions of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, issued Revenue Regulations 9-2021 in June. The order removes the zero VAT on local purchases given to exporters, compelling them to pay 12 percent in taxes for their future orders.

The Semiconductor and Electronics Industries in the Philippines Foundation Inc. warned that some of its members are now planning to source P28 billion worth of supplies from abroad due to the lifting of the VAT exemption. Around 50,000 workers may lose their jobs if manufacturers choose to buy raw materials overseas, the group added.

The DOF also reported that income tax incentives made up close to 31 percent or P149.25 billion of the fiscal privileges provided to exporters and cooperatives in 2019.

Broken down, the government awarded income tax holidays worth P68.4 billion; special income tax rates, P66.41 billion, and incentives for cooperatives, P14.47 billion.

Further, exemptions from the payment of import duties, fees and related charges accounted for almost 10 percent at P47.59 billion, while returns from percentage tax obtained by cooperatives comprised the remaining P1.38 billion.

By sector, over two-thirds or P321.3 billion of the incentives was extended to manufacturers, while nearly 24 percent or P114.8 billion was availed of by services providers. Energy firms took up P26.36 billion in tax perks, while agriculture enterprises secured P19.24 billion.

On the other hand, cooperatives, mostly engaged in microfinancing, received P32.2 billion worth of incentives in 2019. The DOF said the study covered a total of 11,431 enterprises nationwide, of which 5,749 were registered in economic zones while 5,682 were listed as cooperatives.

Aside from bringing down corporate income tax to 25 percent from 30 percent, the CREATE Act lifted incentives granted to investors to introduce a new menu of tax privileges.