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BIR Imposes VAT on Previously Zero-Rated Goods and Services

On 11 June 2021, the Bureau of Internal Revenue (“BIR”) issued Revenue Regulation (“RR”) 09-2021, amending certain provisions of RR No. 16-2005 (as amended by RR No. 13-2018 and RR No. 26-2018). 

RR No. 09-2021 provides that the conditions under Sections 106(A)(2)(a) and 108(B) of the National Internal Revenue Code, as amended by  Republic Act No. 10963 (“TRAIN Law”), have been fully satisfied. The conditions cited by the BIR are as follows:

  1. The successful establishment and implementation of an enhanced Value Added Tax (“VAT”) refund system that grants refunds of creditable input tax within ninety (90) days from the filing of the VAT refund application with the BIR: Provided, That, to determine the effectivity of item no. 1, all applications filed from 01 January 2018 shall be processed and must be decided within ninety (90) days from the filing of the VAT refund application; and
  1. All pending VAT refund claims as of 21 December  2017 shall be fully paid in cash by 31 December  2019.

Provided, That the Department of Finance shall establish a VAT refund center in the BIR  and in the Bureau of Customs (“BOC”) that will handle the processing and granting of cash refunds of creditable input tax.

An amount equivalent to five percent (5%) of the total VAT collection of the BIR and the BOC from the immediately preceding year shall be automatically appropriated annually and shall be treated as a special account in the General Fund or as trust receipts for the purpose of funding claims for VAT refund: Provided, That any unused fund, at the end of the year shall revert to the General Fund.

Provided, further, That the BIR and the BOC shall be required to submit to the Congressional Oversight Committee on the Comprehensive Tax Reform Program  a quarterly report of all pending claims for refund and any unused fund.

As the abovementioned conditions have been satisfied, the following transactions that were previously taxed at zero percent (0%) VAT shall now be subject to 12% VAT:

  1. Sale of Goods Considered Export Sales:
  1. Sale of raw materials or packaging materials to a nonresident buyer for delivery to a resident local export-oriented enterprise to be used in manufacturing, processing, packing, or repacking in the Philippines of the said buyer’s goods and paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas  [Sec. 106(A)(2)(a)(3)]; 
  2. Sale of raw materials or packaging materials to export-oriented enterprise whose export sales exceed seventy percent (70%) of total annual production [Sec. 106(A)(2)(a)(4)]; and
  3. Those considered export sales under Executive Order No. 226, otherwise known as the “Omnibus Investment Code of 1987,” and other special laws [Sec. 106(A)(2)(a)(5)].
  1. Sale of Services under Sec. 108(B) pars. 1 & 5:
  1. Processing, manufacturing, or repacking goods for other persons doing business outside the Philippines which goods are subsequently exported, where the services are paid for in acceptable foreign currency and accounted for in accordance with the rules and regulations of the BSP [Sec. 108(B)(1)]; and
  2. Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceed seventy percent (70%) of total annual production [Sec. 108(B)(5)].

RR No. 9-2021 shall take effect fifteen (15) days following publication in leading newspapers of general circulation or on 27 June  2021.