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With great power comes great responsibility

Yesterday marked the 125th anniversary of the Philippine Independence, marking the day President Emilio Aguinaldo proclaimed the country’s rejection of Spanish colonial rule in Kawit, Cavite. The observance is meant to reminds us of the sacrifices made by our ancestors to secure our freedom.

A live-action film that is currently showing in cinemas, Disney’s The Little Mermaid, is relevant to our celebration as it introduces Ariel and her dream to be part of the world beyond the sea, where she can be freed from the limits set by her father King Triton.

Taxpayers also deal with limitations set by the Bureau of Internal Revenue (BIR), but you could say that the first half of 2023 was marked by displays of compassion. The Bureau released several issuances easing up on regulation compared to the previous requirements. Here are the various updates on Value-Added Tax (VAT) regulations issued by the BIR this year, giving more power to taxpayers and concerned agencies.

A sense of relief was felt after the signing of the Tax Reform for Acceleration and Inclusion (TRAIN) law, which freed VAT-registered taxpayers from monthly filing of Value-Added Tax Declarations (BIR Form No. 2550M) starting Jan. 1, 2023. Taxpayers are now only required to file Quarterly VAT Returns (BIR Form No. 2550Q).

Still, taxpayers asked the Bureau to continue accepting monthly VAT payments as a cash flow-management measure. With that, Revenue Memorandum Circular (RMC) No. 52-2023 was issued to allow the optional use of the monthly VAT returns with no prescribed deadline. The Circular also emphasized that no penalties will arise when the taxpayer opts to file monthly and then reverts to quarterly filing. What matters is that the quarterly VAT return must be filed, and the corresponding VAT must be paid within 25 days following the close of each taxable quarter.

The implementation of the VAT zero-rating application started in 2006, but changes were made upon the effectivity of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, under which Registered Export Enterprises (REEs) can only avail of the VAT zero-rate incentives on local purchases of goods and services that are “directly and exclusively used” in the registered project or activity.

As clarified by RMC No. 24-2022, prior approval from the BIR must be secured by the local suppliers of goods and services of REEs for their sales to be accorded VAT zero-rating. Hence, the absence of prior approval from the BIR may result in the disallowance of the incentive. This requirement puts an additional burden on taxpayers — both on the suppliers and the REEs.

Relief came in the form of Revenue Regulations (RR) No. 3-2023, which allowed VAT zero-rating approval to be obtained on the strength of a certification issued by an Investment Promotion Agency (IPA), provided that the IPA is guided by the rule that such local purchases of goods and services are “directly and exclusively used” in the registered project or activity of the REEs.

The Bureau listed the following services and their related purchases of goods as not eligible for consideration as “direct and exclusive use” items:

1. Janitorial services;

2. Security services;

3. Financial services;

4. Consultancy services;

5. Marketing and promotion; and

6. Services rendered for administrative operations such as Human Resources (HR), legal, and accounting.

Despite the above prohibition, REEs can still prove that the local purchase of goods and services related to the above is directly and exclusively used in the registered project or activity by submitting supporting evidence to the concerned IPA upon application of the VAT zero-rating certification.

Under the Solo Parents Welfare Act, qualified solo parents are granted a 10% discount and VAT exemption on their purchase of goods covered in the above Act.

With that, RR No. 1-2023 was issued to serve as guidance to VAT-registered establishments in giving 10% discounts and applying the VAT exemption on the sales of goods to solo parents. Once compliant, these establishments can claim the discounts as deductions against gross income and the input tax attributable to the exempt sale can be closed to the cost or expense account.

ELSEs are registered business enterprises (RBEs) that exclusively supply production-related raw materials and equipment to export manufacturing enterprises that are registered with the Philippine Economic Zone Authority (PEZA) or other special economic zones or freeports outside the administration of PEZA.

RMC No. 24-2023 clarifies that ELSEs are considered export enterprises if they render at least 70% of their output/services to another registered export enterprise. ELSEs are entitled to avail of the VAT zero-rate incentive on their purchase of local goods and services that are directly and exclusively used in the registered project or activity. Take note that the approval for VAT zero-rating is not required for ELSEs to avail of the incentive, based on the above discussion under RR No. 3-2023.

RMC No. 48-2002, as amended by RMC No. 112-2021, provided a list of imported articles that no longer require the issuance of ATRIG from the BIR prior to release from the custody of the Bureau of Customs (BoC).

Importers of goods necessary for the manufacture of fertilizer and finished feed, which are not covered on the list mentioned above, raised their concerns since the delay in the release of the imported goods due to the issuance of ATRIG inflicts losses on their part. The BIR heard their concerns; in March, the Bureau issued RMC No. 31-2023 to announce that the imported goods necessary for the manufacture of fertilizer and finished feed will be added to the list of articles that no longer require ATRIG. The certification from the Bureau of Animal Industry (BAI) or from other regulators that the imported ingredient is unfit for human consumption or cannot be used for the production of food for human consumption, which is also required to be submitted to the BIR during ATRIG applications, is sufficient for presentation to the BoC to effect the release of the imported goods.

This famous line from Spider-Man reminds us that privileges cannot just be enjoyed; those who receive it are responsible for what they choose to do with it. Thus, taxpayers receiving the aforementioned privileges must also be aware of their responsibilities.

Regarding the option to file VAT returns monthly, taxpayers must consider that doing more than required may incur additional expense. The same goes for when the VAT zero-rating certification issued by the IPA is deemed sufficient proof to avail of the incentive; the IPA must be responsible for providing the BIR a list of REEs issued the certification within 20 days following the close of each taxable quarter. The taxpayer must also prove that the local purchase of goods and services availing of the VAT zero-rate incentives are indeed directly and exclusively used in the REE’s registered project or activity.

Moreover, solo parents must also comply with the requirements to avail of the discounts and exemptions, while the VAT-registered establishments selling them goods must comply with the guidelines for deducting the discounts against their gross income.

Regarding the issuance of the certification by BAI or other regulators, it is the agencies’ job to validate the declared goods for release from the BoC and to submit to the BIR the list of importers that obtained the certification for tax audit purposes.

Let’s Talk Tax is a weekly newspaper column of P&A Grant Thornton that aims to keep the public informed of various developments in taxation. This article is not intended to be a substitute for competent professional advice.


Raymart F. Cinco is a senior in-charge of the Tax Advisory & Compliance division of P&A Grant Thornton, the Philippine member firm of Grant Thornton International Ltd.

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