The government may lose P33 billion in big ticket investments if it pushes the mandatory collection of value added tax on the domestic purchases of companies operating within the economic zones, the Philippine Economic Zone Authority said over the weekend.
PEZA said at least projects were poised to defer their investments in the country, including the P16-billion expansion project of an electronics company, the P11-billion integrated steel project of a Chinese investor and the P6-billion expansion of a consumer durable goods manufacturer.
A Swiss company that designs and manufactures connectors and sensors for several industries also has reservations on the 12-percent VAT measure and may not proceed with its investments., according to PEZA.
The Swiss firm supplies products to many industries, including automotive, industrial equipment, data communication systems, aerospace, defense, medical, oil and gas, consumer electronics and energy.
The PEZA board recently passed a resolution “supporting PEZA management and its investors to suspend the implementation of the revenue regulation that imposes VAT, in consideration of the pandemic as foreign and domestic enterprises are still struggling to survive and keep the jobs and operations to continue.”
By virtue of the recently-approved implementing rules and regulations of the CREATE law, the Bureau of Internal Revenue crafted and subsequently implemented RR 9-2021, which subjects previously zero-rated goods and services inside the ecozones to 12-percent VAT.
“Imposition of the VAT is untimely and inconsistent because the government extended business assistance and reliefs to investors to continue operations and even included the COVID-related expenses be deductible to their 5 percent gross income earned which was supported by the BIR,” PEZA said.
The agency said the VAT imposition would increase the cost of local supply and raw materials and would encourage the exporters to import instead, as imported materials and supplies are duty-free, which will adversely affect local suppliers.
Despite the new regulation, PEZA promised to recommend more projects for consideration of the Fiscal Incentives Review Board and endorse the same for incentives and subsidies under CREATE law.
PEZA director-general Charito Plaza said the agency was planning to endorse many big ticket projects to the FIRB, particularly expansion projects by big investors.
“We’re calling them for a meeting to discuss their plans and expectations from the government,” she said.
PEZA said many of the companies with pending project applications were prepared to seek alternative locations if the issue on VAT and other incentives affected production and profit.
The agency said various ecozone industry groups already reached out to the Department of Finance for the suspension of RR 9-2021.
“Our overall aim is how to lower the cost of doing business and enhance the ease of doing business to attract world investors,” PEZA said.