THE Philippine Export Service Providers and Consolidators Association Inc. (PESPCAI) said its outlook for 2023 is “not that optimistic” because of the 12-percent value-added tax (VAT) imposed on indirect exports, among others.
“We are not that optimistic for 2023 simply because of the VAT and also the shipping and logistics issues,” Tomas B. Medina, president of PESPCAI, said at the news briefing hosted by the Philippine Chamber of Agriculture and Food Inc. (PCAFI) in Quezon City on Friday.
The head of the PESPCAI cited the problems besetting local export consolidators, among which is the 12-percent VAT being imposed on indirect exports under the Corporate Recovery and Tax Incentives for Enterprises (CREATE) law and the shipping and logistics issues, which he said are “hampering” exports.
In a news statement issued on Friday, PESPCAI said, “We ask for the exemption from the 12-percent VAT on indirect exports under CREATE law, through our inclusion of exporter consolidators in the Strategic Investment Priorities Plan (SIPP) of 2023 of the Board of Investments.”
Another way, the group said, is through “a memorandum of the BIR (Bureau of Internal Revenue) for a stay on implementation of CREATE law’s VAT on Exports until an eventual corrective legislation of the CREATE law.”
The group of local export consolidators stressed that the Philippine could not follow the practice of some of the country’s competitors in the global arena, who can employ zero VAT on exported goods or even impose low VAT rates of 3 to 5 percent, or establish an automated refund system immediately after a shipment, “because our business environment is highly regulated and ease of doing business is not yet a reality.”
In fact, the group noted in its statement there has already been an “exodus” of the production of national brands—driving the products from Monde Nissin, URC, Century Pacific, Frabelle, Liwayway Marketing, and even Profood International Corp.’s dried mangoes into the Philippines’s neighboring countries.
Medina said the group has been “exhuming” all possible avenues as it reached out to lawmakers, including House Committee on Ways and Means Chairman Joey Sarte Salceda, Senator Sonny Angara, Senate President Juan Miguel “Migz” Zubiri, and House Speaker Martin Romualdez.
The PESPCAI chief noted that the group has also relayed the concern on VAT to the Department of Trade and Industry (DTI)’s Export Marketing Bureau, Export Development Council, and the BOI.
“Because our VAT rests on a law . . . the CREATE law, that cannot be changed until and after Congress really makes a corrective legislation, which could take two years in Congress,” Medina stressed.
The head of the local export consolidators said, however, that if Congress believes that VAT will continue to be imposed on indirect exports, it might kill a lot of micro, small, and medium enterprises (MSMEs). Medina added that the group’s members might also move to other countries to source the products. He stressed that if this is the situation that exporters have to face, “we will just become brand owners.”
As for the group’s plea to be included in the SIPP of 2023 – what he called the group’s “last avenue” — Medina stressed that if BOI allows the group to become part of the SIPP as service providers, it will help the group since it covers a wide range of services for small merchants.
He expressed hope that BOI “will consider our petition as a group to become part of the SIPP as service providers because the service we provide MSMEs is, as I said, not just in financing, shipping, trading – but also with compliance and certification. The involvement of export consolidators in small – and even big – is quite significant,” Medina explained, partly in Filipino.
If this won’t push through, Medina said, more closures are forecasted both among MSMEs and the export sector.
Medina also touched on the other issues hampering exports, such as shipping and logistics issues.
“These are compounded by the myriad of trade issues on shipping and logistics, lack of access to and high cost of export financing, high cost of inputs from packaging, labels, raw materials, ‘non-congruent’ regulations imposed by agencies affecting exports from the Bureau of Customs (BOC), the Philippine Ports Authority (PPA), the concerned agencies of the Departments of Trade and Industry, Finance, Agriculture, Science and Technology, Health, which rolls out ‘non-convergent’ programs that either duplicates, diminishes, or stamps a ‘band-aid’ poster program for the export stakeholders,” the statement of the local export consolidators read.
For his part, Renato Pamintuan, president of Bayside Terminal and Transportation Services Inc. highlighted the shipping and logistics problems faced by the Philippines in the global arena.
Pamintuan stressed that the Philippines could have been the shipping center of Asia, “but we are not — simply because of the omission and lack of direction of our government for the last 50 years.”
“We should have exploited the position of the country but we did not. So, what happened? The mother vessel moved to Shanghai, Taiwan, Korea, and other places,” As a result, he explained, “before our cargo reaches the final destination in the US or EU, a feedering cost is first imposed on our small vessels” which must transfer the cargo to the mother vessel. The resulting problem is that “now, [we have] about $500 to $1000 additional cost over and above our usual cost,” Pamintuan said.
Pamintuan stressed that the global supply chain “mess” also stalled the shipping of goods since other countries that could afford the “premium freight” were being prioritized.
Shipping lines take the cargo of those willing to pay premium freight, so, for example, if a shipper in China is willing to add $1,000 just so his 40-footer container will get priority loading, “our [Philippine] container will first sleep in Shanghai container yard, so that means it will probably arrive in the US after six months, said Pamintuan.
With this, he added, this is turning into a “national security issue” since almost all of the international shipping lines are “foreign-owned.”
PESPCAI said the country’s exports from MSMEs has reached $1.5 billion through its group, and a host of other export facilitation programs, which it said is a “significant” number that enables and empowers small merchants into food, personal care, specialty garments and crafts to extend their market overseas.
The group said it employs an estimated 12,000 direct workers and about 250,000 indirect project or shipment and or season-based casual workers.
In addition, the local export consolidators noted, “the employment generated extends to the support sectors from toll manufacturers, logistics to packaging and label as well as contracted farmers and fisher folk.”
Image credits: Qilai Shen/Bloomberg