Monday, June 17, 2024

BPO, semicon industry groups keenly await ruling on VAT zero-rating

Industry groups representing the three largest export sectors of the Philippines – the information technology and business process management, semiconductor and electronics, and garments and wearables industry– released a joint statement saying that they are keenly awaiting for a resolution on the value-added tax (VAT) issue currently being finalized by the government through the Fiscal Incentives Review Board (FIRB).

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The IT and Business Process Association of the Philippines, Inc. (IBPAP), the primary trade body and advocacy group of the IT and Business Process Management (IT-BPM) industry; the Semiconductor and Electronics Industries in the Philippines Foundation, Inc. (SEIPI), the largest organization of foreign and Filipino electronics companies in the Philippines; and the Confederation Wearables Exporters of the Philippines (CONWEP), which represents the largest association in the Philippines of the export manufacturing industry sectors of apparel, travel goods and shoes, said a solution has been promised by the end of the month which also coincides with the end of the first taxable quarter.

As exporters, these three industries have claimed VAT zero-rating on their purchases consistent with existing local regulations and globally accepted principles allowing for the sectors to remain competitive.

The understanding of the sectors is that most of the government agencies involved in resolving the issue believe that there is clear basis for all purchases of exporters to be without the 12% VAT, given that this is not only allowed by the rules but is more importantly critical in ensuring that the prices at which the services and goods offered are able to remain competitive in the international market.

The groups said the same issue has also given rise to confusion on the part of the various industries engaged as suppliers of goods and services to the export sectors, such as the providers of healthcare, power, raw materials, and other integral services.

It is believed that the failure to address the VAT issue may have a crippling consequence on the parts localization initiatives of exporters and particularly affect their local suppliers who will be more at risk should they lose their market. 

In several meetings among representatives of the three export sectors with government officials, there is strong agreement that this is the biggest issue they are all currently facing. The inability to address this serious and pressing matter by the end of March will have detrimental effects to these three sectors particularly in sustaining their growth potential.

In discussions about this issue, the Investment Promotion Agencies (IPAs) such as the Philippine Economic Zone Authority (PEZA), Board of Investments (BOI), Clark Development Corporation (CDC), Authority of the Freeport Area of Bataan (AFAB), among others, are deemed to be in the best position to determine and endorse list of goods and services eligible for VAT zero-rating purchased by exporters from local suppliers. 

The combined contribution of these three export industries, $83 billion, account for a substantial 69% of the total goods and services exports, contributing 20% to the country’s overall GDP in 2022.

Moreover, there are currently approximately 2.5 million direct and 6.75 million indirect employees who depend on the capacity of these three sectors to survive and compete.

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