BUSINESSES in the information technology (IT) and business process management (IT-BPM) industry can now heave a sigh of relief after the Bureau of Internal Revenue (BIR) released the rules on the value-added tax (VAT) zero-rating of goods and services.
After months of “uncertainty” on the VAT zero-rating of goods and services, businesses under the IT and Business Process Association of the Philippines (IBPAP) said IT-BPM registered export enterprises (REEs) and their local suppliers “finally have much-needed clarity on this important matter.”
The IBPAP cited two significant rules in the BIR’s Revenue Regulation (RR) 3-2023. One is the articulation that health maintenance organization (HMO) premiums are “appropriately” VAT zero-rated. The other is confirming investment promotion agencies (IPAs) to have jurisdiction over any and all issues relating to VAT zero-rated purchases of their respective REEs.
“We are grateful that we now have this RR as basis in handling the issues that we have been grappling with for some time,” read a statement issued by IBPAP last Monday, or nearly three weeks after the filing of income tax returns.
The flagship organization of the IT-BPM industry, however, noted that it looks forward to the “further streamlining of the regulation to the effect that those exporting within the minimum threshold of 70 percent be allowed full-VAT exemption or zero-rating on their purchases given their compliance to the export condition of their registration.”
Last month, Semiconductor and Electronic Industries in the Philippines Foundation Inc. (SEIPI) President Danilo C. Lachica said the BIR regulation is a “significant” improvement to alleviate concerns of constructive exporters.
“What could be better is to have zero-VAT for companies that export at least 70 percent of their products.” Lachica said noting this matter was discussed with and supported by the Department of Trade and Industry.
Nonetheless, IBPAP said businesses remain “are hopeful that no obstacles will be encountered henceforth given the new direction to allow IPAs to exercise full supervision and monitoring on this matter.”
The BIR measure—issued last April 26—stated that “in all instances in issuing the VAT zero-rating certification, the concerned IPA shall be guided by the rule that such local purchases of services are directly attributable to the registered project or activity without which such registered project or activity cannot be carried out.”
Still, the BIR said it will conduct post audit investigation/verification that the services are indeed directly and exclusively used by the registered export enterprise in its registered project or activity.
The BIR regulation explained that those considered “directly and exclusively used” are “costs that are indispensable to the project or activity, i.e., without which the project or activity cannot proceed, and these include expenses that are necessary or required depending on the nature of the registered project or activity of the export enterprise.”
RR 3-2023 also listed goods and services that will be zero-rated.
The services that are in the negative list—those deemed not “directly and exclusively” used by the registered project or activity of a registered export enterprises—are: janitorial services; security services; financial services; consultancy services; marketing and promotion; and, services rendered for administrative operations such as human resources (HR), legal and accounting.