Part 1

The Secretary of Finance has issued Revenue Regulations (RR) No. 13-2018, amending RR No. 16-2005, and implementing the value-added tax (VAT) and percentage tax provisions of Republic Act (RA) No. 10963, the “Tax Reform for Acceleration and Inclusion” (TRAIN) Law. RR No. 13-2018 took effect January 1, 2018, the effectivity date of the TRAIN Law.

For the longest time, RR No. 16-2005 was the definitive guide to VAT and percentage tax, and the amendments introduced by the TRAIN Law through RR No. 13-2018 marks a significant change on the tax implications of certain transactions.

With that, we discuss below the salient features of RR No. 13-2018:

The following export sales continue to be subject to VAT at a 0 percent rate:

The sale of raw materials or packaging materials to a non-resident 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, paid for in acceptable foreign currency, and accounted for in accordance with the rules and regulations of the Bangko Sentral ng Pilipinas (BSP);

The sale of raw materials or packaging materials to an export-oriented enterprise whose export sales exceeds 70 percent of total annual production;

Transactions considered “export sales” (the Philippine port F.O.B. value of export products, or the net selling price of export products) under the Omnibus Investments Code of 1987and other special laws;

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;

Services performed by subcontractors and/or contractors in processing, converting, or manufacturing goods for an enterprise whose export sales exceeds 70 percent of the total annual production;

Note that the above export sales shall be subject to 12 percent VAT upon the happening of the following conditions:

The successful establishment and implementation of an enhanced VAT refund system that grants and pays refunds of creditable input tax within 90 days from the filing of the VAT refund application with the Bureau of Internal Revenue (BIR); and

All pending VAT refund claims as of December 31, 2017 shall be fully paid in cash by December 31, 2019. For this purpose, the Department of Finance shall establish a VAT Refund Center in the BIR and in the Bureau of Customs that will handle the processing and granting of cash refunds of creditable input tax.

The sale of goods, supplies, equipment, fuel and services to entities engaged in international shipping or international air transport operations continue to be subject to VAT at a 0% rate. The regulation however clarified that the goods, supplies, equipment, fuel and services should be used exclusively for international shipping or air transport operations, that is, the transport of goods and passengers from a port in the Philippines directly to a foreign port, or vice versa. Thus, if services were rendered to common carriers in connection with their transport of passengers and cargo from one place to another place in the Philippines, such service shall be subject to 12 percent VAT.

Also, the transport of passengers and cargo by domestic air or sea vessels from the Philippines to a foreign country is subject to 0 percent VAT. As for international air or shipping carriers doing business in the Philippines, their gross receipts from the transport of passengers and cargo from the Philippines to another country is exempt from VAT, and will instead be subject to the 3 percent percentage tax.

We’ll continue to discuss RR No. 13-2018 in next week’s article, where we’ll be tackling VAT-exempt transactions, as well as claims for refund/credit of input tax.

Manila Times Source

ATTY. PEACHES ARANAS

Managing Partner LMA LAW